ABSTRACT
This chapter investigates the effects the interaction of liberalization reforms had on the Chilean manufacturing sector. It discusses the effects of the opening up of the economy on the industrial sector during the 1974–1982 periods. The chapter specifically illustrates the impact of trade liberalization on import-competing firms. It investigates empirically the financial behavior of export firms, import-competing firms, and firms producing nontradables during the 1977–1982 periods. It also attempts to determine to what point firms hard-hit by increased foreign competition borrowed in the liberalized financial market in order to remain in operation. The chapter argues that even if firms believed in trade liberalization reform, the extremely high level of interest rates they faced throughout the whole period, together with the exchange rate appreciation, prevented them from adjusting to the new economic conditions. The exchange rate policy should ensure a stable real exchange rate in order to make the traded goods sector permanently profitable and competitive.
