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Growth and Development Centre

Following a poor performance during the decade of the1980s, FDI flows to the countries of Latin American surged during 1990s, from $8.4 billion in 1990 to 93 billion in 1999, or an eleven fold increase [ECLAC, 2001]. The strength of these flows is revealed by the fact that despite the serious economic downturn in Mexico in 1995, and the associated “Tequila effect” which reduced FDI inflows relative to 1994, they staged a remarkable recovery during the following four years, easily surpassing the pre-crisis levels. In absolute terms, the major recipients of FDI flows have been concentrated in a few major countries of the region, in order of importance of the cumulative level of inflows during the 1990-99 period, they are Brazil, Mexico, Argentina, Chile and Venezuela. The major supplier of FDI flows to Latin America during the decade of the nineties (and historically) has been the United States followed, in order of importance, by Great Britain, Japan, Germany, and France [ECLAC, 2001] In relative terms, the major countries of Latin America, including Chile, have exhibited a consistently strong record of attracting FDI inflows during the decade of the 1990s, never falling below 1.5 percent of their countries’ respective GDPs, and beginning in 1994, FDI inflows have averaged 5.4 percent in the case of Chile [ECLAC, 2000]. The importance of these inflows is more fully appreciated by focusing on the evolution of FDI flows relative to Chile’s gross fixed capital formation. Table 1 (part A) shows that during the 1990-1995 period FDI flows to Chile represented close to 10 DOES FOREIGN INVESTMENT ENHANCE LABOR GROWTH IN CHILE 207 percent of its gross fixed capital formation, and in1996 and 1997, these flows reached more than a quarter of gross fixed capital formation—the highest figure among the major countries of the region, or for that matter, the developing world