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Factors of labour productivity and quality

Another (indirect) and admittedly crude way of assessing the potential spillover benefits of FDI inflows to Chile is to examine their sectorial distribution during the second half of the 1980s and the decade of the 1990s [Agosin, 1995]. For example, if the sectors receiving the FDI inflows are traditional sectors using highly standardized technology with relatively few forward and backward linkages to the rest of the economy, then one may presume that these spillover effects are minimal, while if FDI flows are channeled to “greenfield” investments or to non-traditional sectors using innovative technological processes and managerial techniques, then one may infer that these positive spillover benefits are on an average greater. Table 2 below shows that under the Chilean government’s 1974 Foreign Investment Statute (known as Decree Law 600), a significant proportion of the surge in FDI to the country during the second half of the 1980s and the decade of the 1990s was directed to traditional sectors such as copper mining. The table also suggests that beginning in 1993 a significant share was channeled to financial services and industrial sectors based on natural resources and oriented toward exports, such as pulp and paper and fish and sea products. Although FDI flows authorized under Decree Law 600 have been, by and large, confined to traditional sectors such as copper mining, Table 2 also shows that those authorized under Chapter XIX of the debt conversion program implemented in 1985 but discontinued after 1991, granted only limited access to the traditional mining sector and were primarily directed to priority sectors in industry with an outward orientation, such as cellulose and paper and non-traditional agricultural and sea products.1 Despite the Chilean’s governments attempt to promote non-traditional sectors by imposing restrictions on investments in the mining sector, the amount of FDI flows channeled through both Chapter XIX and DL 600 during the 1987-95 period were primarily confined to mining and traditional industries such as textiles, leather, and footwear where the country has a comparative advantage based on low unit labor costs and natural resources.2