Mining development and macroeconomic spillovers in Chile

This work analyzes and quantifies how the mining sector affects the other macroeconomic variables in Chile, with special focus on understanding the macroeconomic factors that have helped Chile to avoid the Natural Resource Curse. To do this, we use three complementary strategies. First, we review the related literature and present aggregate statistical data for the mining sector in order to illustrate the significant impact of this sector on the key macroeconomic variables in Chile. Second, using semi-structural econometric evidence, we estimate the macroeconomic effects of changes in copper prices and mining production. Third, we develop a structural macroeconomic model that enables analysis of the macroeconomic effects of mining sector shocks. The results show that the development of the mining sector in Chile has been beneficial to the non-mining GDP, investment, fiscal revenue and labor market. Using the structural model, we also quantify the macroeconomic effects of mining development in Chile during 1996-2005. The structural model also provides a quantification of the role of the fiscal rule and production interlinkages in enhancing these macroeconomic effects. Finally, an extended version of the model, separating mining production into regional zones, confirms the previous results and underscores the difference in production interlinkages across mining regions.