We average the different indexes available since 1993. None of these variables enters significantly in model (6). Most important our other independent variables remain practically unchanged both in terms of magnitude and significance. The implications of these results for Chile are important. If we take column 5 as our departure model several interesting conclusions arise about the impact that feasible reforms may have on the rate of TFP growth and therefore on the overall performance of the Chilean economy. If Chile were to increase their results in international tests like the TIMSS to the average country achievement our results suggest that the rate of growth of TFP could increase by 0.6 percentage points. An average achievement will put a country like Chile at the level of Thailand or Lithuania, and slightly below countries like Latvia, Malaysia or Bulgaria. None of these countries have a GDP per capita higher than Chile at PPP levels. One of the main factors behind the underachievement of Chilean students is that schools are rarely held accountable for their performance (Eyzaguirre and Fontaine, 2001). If this is the case it is urgent to reform educational institutions in order to assure accountability among schools. A key aspect in this direction is the reform of the teachers’ labor statue that protects teachers heavily without clear obligations. Another avenue to improve productivity is by increasing government efficiency. For establishing a firm in Chile 78 days are required. This is well above the median of 55 days and the OECD average of 24 days. If Chile were to have an efficient government that among other things is able to reduce the days required to establish a firm TFP could grow at an additional 0.2 percentage points. The small number is a little bit disappointing. There are two interpretations for this result. Firstly it could be argued that ours is too narrow an indicator of government effectiveness. Secondly that an ineffective governments influences the performance of an economy much more through its policies than through the functioning of the civil service. So a highly efficient bureaucracy in a 16 Of course, ideally we should have extended their data until the year 2000.
32 highly distorted economic environment will have no impact on TFP or in economic growth. These arguments suggest that the regulatory burden may be of greater importance than the quality of bureaucracy in determining a country’s economic performance. Indeed there is almost a one to one relationship between the quality of the regulatory burden and the growth in TFP. The value of this indicator for Chile is relatively high (0.89 versus a maximum of 1.25) but notwithstanding there is a lot of room to improve in this dimension. The maximum value that this indicator takes is 2.5. Indeed in other dimensions of the governance indicators built by Kaufmann et. al. Chile gets higher values than the one obtained in the regulatory dimension. The good performance of the
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- Summer '18
- Sagar Arora
- The Land, TFP