Macroeconomic Performance and Decision Making

By Vera Ndrecaj 

BA (Hons).  MBA 

verandrecaj@yahoo.co.uk

Contents table

1. 1. Introduction...............................................................................................................................................3 
2. 2. United Kingdom

1. 2.1   Macroeconomic performance......................................................................................................3
2. 2.2   International trade performance..................................................................................................9
3. 2.3   A critical evaluation of the economy as a target market for export...............................................12.
4. 2.4 An analysis of the strengths and weaknesses of the economy as a  location for FDI....................13

1. 3. Albania

       3.1 Macroeconomic performance.......................................................................................................................14

      3.2 International trade performance....................................................................................................................17

      3.3 A critical evaluation of the economy as a target market for export..................................................................20

             3.4 An analysis of the strengths and weaknesses of the economy as a location for FDI......................................21

    4. Chile

4.1Macroeconomic performance............................................................................................................................21

1. 4.2 International trade performance........................................................................................................24

4.3 A critical evaluation of the economy as a target market for export....................................................................27

4.4 An analysis of the strengths and weaknesses of the economy as a location for FDI........................................28

2. Introduction


  The purpose of this paper will be to summarize the macroeconomic and trade performance over the last three years for three different countries with different types of economies. The report will focus on 

• UK – a large industrial economy within the trade markets 
• Albania - a small open economy, and 
• Chile - a non-trade emerging economy.                                                                                          

   The study will examine the economy as a whole, viewing total spending level and total level of production or in other worlds aggregate demand and supply.
It will also scrutinize the national-output to economic-growth, unemployment-to-inflation, and the balance of payments and the exchange rate. The study will also measure economic performance by evaluating different macroeconomic measurement techniques; Gross Domestic Product (GDP) economic activities, goods and services produced in a year. Gross National Product (GNP) measures total income earned by domestic citizen. Moreover, expenditure, income, and output will be used as measurement tools for national output of  each countries.


    Furthermore, it will critically evaluate targeted export markets of  three countries for the last three years 2007-2010. It will also analyse strength and weakness (internal intrencities) of each economy favouring Foreign Direction Investment (FDI).  Moreover, the paper will explore in depth some contents theories and apply these theories in to practice to support argument put forward.

   Macroeconomics, like microeconomics view issues such as; output, employment and price in context of economies as a whole (Sloman, 2004).  The main concern to governments are economic growth, reducing unemployment, reduce inflation and avoiding balance of payments and exchange rate (Parker, 2008). The government support and also policies are very important for avoiding conflicts of these goals. The author tend to define macroeconomic performance by reviewing macroeconomic theories that provide answers for several problems and have a better understanding of factors that can influence macroeconomic performance. It also explain some techniques of measuring economic performance.  Before examine the causes of economic of growth is essential to distinguish between actual and potential economic growth. 

     According to Sloman (2004) actual growth is a percentage annual increase in national output. The potential growth is the speed at which the economy could grow.  Factors contributing to economic growth are an increase in recourses (natural, labour, or capital), and increase in efficiency of these resources through advanced in technology, improve labour skills. The major issues concerned with economic growth the short-run ensuring that actual growth is to keep actual output as closed as possible to potential output, and long-run issues of what determine the rate of potential economic growth. However, short-run are several of aggregate demands. But, what is aggregate demand? “It is a total spending on goods and services made with the country” (Sloman, 2004:405). A boom in economic growth is associated with rise in aggregate demand; in contrast recession is associated with reduction in aggregate demand.   

    Employment and output theory are focus on main issues relating people as key resources, the theory tends to answer the following question; Are people fully employed? (Lipsey, 1989). The theory also suggested that all people should be employed (Currie, 2008). It is vital all resources are efficiently utilized in order to maximize the outputs of the country (Keynes, 1936). On the other hand Business Cycle theory will be explored to enable the author to find out that, if the economy is stable, also investigate reasons for economic fluctuation.  Another theory related to macroeconomic performance is Consumption and Investment. This theory examined what people do purchase, what are trends and demands. This is important to find out what customers purchase ‘today’ (investment) produce goods for ‘tomorrow’. The theory generates knowledge about supply and demand, therefore, is important to understanding this theory on the macroeconomic level.

    In order to explore further on macroeconomic performance of the above countries regarding to  inflation and deflation General Price Level theory (Keynes, 1936) is a facilitator of analysing the situation regarding demand and supply. The theory also helps us to ought a better understanding of monetary aspects such borrowing, lending,  and savings. For everyday activities money is in demand, it can be less, more, or equal to existing supply.  Any deficiency on supply can cause shift in general price level (Currie, 2008). Lipsey, (1989) explained that, the economic growth is measured by the capacity of economies to provide goods and services, and enhance the productivity year to year. However, for some countries such as UK, the capacity of production has grown faster than the country’s’ population.  In this context this study raise a question why some economise are doing better than others, or some economies remind static or refuse to grow. To answer this question and enable the researcher to compare and contrast, and analyse long-term issues for growth of the above countries Economic Growth theory will be applied. 

   Another basic economic problem is allocation of suppliers of goods. However, Macro Theory of Distribution (Kaleck & Kaldor, 1990) attention was to further investigation in how national income is shared. Currie, (2008:6) suggested that, issues related to different groups of buyers such as; customers, business firms, government bodies, foreign customers, imports and exports, international flows of investment and international price movements are very important and have enormous impact on economy, the Theory of International Trade deal with all this issues.  

2.  United Kingdom (UK) as a large industrial economy with in one of the triad market. 

         2.1 A summary of macroeconomic performance over the last three years

 The common indicators of economy performance are:

Gross Domestic Product (GDP)

Labour productivity

Inflation

Unemployment 

Exports 

Imports

International competitiveness (Sloman, 2004).

   However, economic growth is the indication of change in goods and services produced by an economy (Hall et al. 2004).  One way to assess an economic growth is to examine its GDP and GNP figures where both variables are measurement of year-to-year produce. The economy tends to grow over the period of time and it can also be measured by changes in national income. 

The population of UK is 60.8 Million and its gross national Gini index coefficient for 2008-2009 was 0.36% beyond the normal bounds of inequality seen in developed country (Mason, 2009) and remained unchanged between 2005-2006. BBC, (2010) the UK economy is growing slowly, the growth is 0.8% in 2010, which is 0.4% lower than the 1.2% predicted by analyst for the second quarter of 2010. For the similar period in 2009 the output was up by 2.8%.  Figure 1 shows, UK GDP growth fell by 3.1% during 2008 from 0.6 to -2.5%. In second quarter of the year for first time since 1993 the output and income started to fail therefore the economy growth was declining because of recession. 

    The GDP bounced back to reach 0.4% in 2009 more in line with original market expectation (Powell, 2010). The income started to rise again after a slump. The output is increasing as spending power and confidence increases. But in term of employment is UK economy recovering or it is still slump?  Reekie and Crook (1987); Hill, (1997); Hall et al., (2004); explained unemployment to be high with low confidence, spending, investment and low profits due to economic depression.  The economy experienced very difficult time as a result of decline on housing and household market from 2007-2010.  Unemployment rate as shown in figure 2 was rising rapidly from 5.5% (2008) to 8.0 % (2009) because of financial economic crisis but dropped 7.5% in 2010 (positive indication). According to (www.statistics.gov.uk ) in 2009 the employment fell by 20,000 to 2.45 million and the unemployment rate were higher for woman than for man (Sloman, 1991).  Unemployment statistics revealed, unemployment for male fell by 56,000 to reach 1.44 million and while for female it increased by 36,000 to 1.01 million.

     The higher unemployment among men reflects that, the decline in industries that employed mainly man such as coal and steel; technological innovations replacing men with machines and companies moving abroad, for example; SAMSUNG, LG, and Panasonic relocating to different countries to exploit factors-of-production cost due to cheaper resources (land, labour and etc.); this provided for, redundant activities and exasperated by governmental cuts for public sectors (education, NHS, construction).

      
      There is also the direct financial cost to be considered for unemployed/redundant employees. Cost of loss-on-earning for this unemployment, is the difference between their previous wages and any unemployed welfare benefit drawn from the state coffers. Then there are personal cost of being unemployed, which introduces multiplying factors on economic leakages due to loss-in-output; loss-in-tax revenue due to drop in income tax generation and  national insurance, not forgetting the disposable income reducing from 3.2% in 2009 to 1.5% in 2010 (Davies, 2010).The number of females claiming Jobseeker’s allowance is due to rise of 4,200 and to reach 431,000, but the number of males claiming is increase by 1,100 but in total it remained higher than females 1.04 million. The economy faced another challenge when job vacancies/availability fell from 459,000 (2007) to 30,000 (2010). In the last three years the biggest fall was in education sector when job vacancies fell from 17,000 to 3200. The employment opportunity rose to 241, 000 (2010) but this is still lower than the 270,000 for two previous years (Figure 2).

     The rate of inflation measures the annual percentage increase in prices. Consumer price index (CPI) and retail price index (RPI) reflects the inflation rate. The rate of inflation and annual inflation remained positive from 2008 – 2010 (Figure.2); however, RPI was significantly high at 5% in September 2008 and reached -1.8% due to downward pressure of the inflation rate. According to (www.statistics.gov.uk) the target measure of government was 3.1% in September 2010. Although, CPI remain in stable level, other factors affected the RPI i.e.; air transports fares fell by 23.8% in 2009 and 27% in 2010; causing fuel prices to plummet further by 0.8% in the 3^rd quarter of 2010, compared to 2.3% in 2009. Another factor driving the downward trend is second–hand cars price. 

   The increasing inflation rate has pushed the price up exerting pressure on car sales and exasperated by rapidly increasing prices of complementary and substitute products (petrol. diesel, gas, etc.). Food and footwear are subjected to upward pressure due to change in CPI as a result of increasing prices of complementary products. Figure 3 shows annual RPI trends of ups and downs but in the overall stayed positive.  Together with RPI, the mortgage interest are slowly falling from 4.7% (August) to 4.6% (November) in 2010. However, from 2007-2009, there was a major fall in inflation as a result knock-on-effect of the subprime property market crisis. Figure 4 shows, the currency value is declined due to economic recession. Bank of England introduced cuts in Bank Rate to 0.5% to thwart low confidence unlike in the 80s and 90s interest rate reminded double digit rates throughout that recession. 

2.2 A summary of international trade performance over the late three years

      The summary of UK trade balance is negative as a result of turbulences of global economic and political situation, and also, changes in market share as an influence of emerging economies China, Brazil, and India (Fig. 6). Another major reason is decrease in natural resources. However, USA, Germany, Netherland, France, and Republic of Ireland are five markets for both goods and services exports for UK (Fig. 10). National Audit (2010) analyses have identified following barriers of the country disincentives to trade

Local culture and language 

Size of market lack of profitable niches 

Lack of local infrastructure

Bureaucracy

Corruption 

Control over intellectual property rights 

Political and social instability 

Economic uncertainty and 

Impact on distance and climate. 

     According to ONS (www.statistics.gov.uk) the deficit on trade of goods and services was £4.6 billion in September 2010 compare to August 2010 (see figure 6). The deficit on trade in good was overall £8.2 billion include the surplus on trade in service which was 3.7 billion in September 2010. Export is greater than import, export rise by £0.5 billion, and import rise by £0.2 billion. Main products of exports and imports are shown in fig. 11. 

2.3 A critical evaluation of the economy as a target market for export. 

       The UK has a third largest national economy in EU measured by nominal GDP. However, it is one of most globalised economy.  As shown in fig. 6 deep trade deficit have been flat for last six months in 2010, despite the weakness of sterling. However, it is not yet clear picture of an export-led recovery for UK economy, weak demand in the UK domestic economy makes exports very important to the countries perspective and key element in the future successes of many SME’s. According to www.britishchambers.org.uk British companies have always looked overseas for new opportunities, for UK economy foreign trade is crucial.  The UK business is estimated to be worth £200 billion, equivalent to 17% of the countries’ GDP. UK is the world’s sixth largest exporter of goods and services, in term of investment is behind USA as the largest investor in overseas markets.

China and ASEAN countries have signed the agreement for free and borderless trade relationship this has put pressure in other countries. According to Parker (2010) the PM of UK has promise the relationship with China will take a new level. More than 40 businesses are pledged to sign with China as part of Cameron’s trade mission The contracts signed on the trip would be worth “billions of dollars”, he said, setting a new target of doubling the value of bilateral trade with China to more than $100bn (£62bn) a year by 2015. Writing in the Wall Street Journal, the prime minister hoped that British exports would rise to $30bn by 2015

2.4 An analyses of strength and weakness of the economy as a location for Foreign Direct Investment

      Table 13 shows all legal business entities. Status and capital must be registered with ‘Companies Registration Office’ which delivers a registration number and a certificate of registration. Once these documents are provided, the company is legally constituted and can start its activity. These procedures take about 6 weeks. As for branches, procedures are shorter since they are limited to an activity declaration with the Register of companies, within one month after the activity starts. 

Strength

Weakness

¬ Speed of formalities                          ¬ London world’s leader of financial service                         ¬ High standard legislations                         ¬ Low taxation makes the environment investor-friendly                          ¬ Foreign companies are treated same as British companies                          ¬ One of the Worlds Globalized countries                         ¬ High skills

¬ The financial sector’s excessive influence on the GDP                                             ¬ Poor quality of structure                                 ¬ Less competitive than other EU economies                         ¬ High level of competitiveness from foreign companies in industrial sectors                         ¬ Lack of natural resources                           ¬ One of the Worlds Globalized countries                         ¬ Weak currency                          ¬ Technology                          ¬ Resource allocation

3. Albania as a small open economy 

3.1 A summary of macroeconomic performance over the last three years

     The population of Albania is 3, 2 million; the currency is Lek the exchange rate of Lek in short – run is $107.2 or €136.4 in 2010, but it is variable. GNI per capital is $3,910, and unemployment is 12.8% it is down from 15% in 2003 (www.wb.com)  

     The author will focus on economic growth, by examining demand and supply in total level of spending in the economy and total level of production in order to find out if there will be more goods and services for people to consume (Sloman, 1991). The GDP per capital is 2.8% (Figure. 16) but according to INSTAT (national statistical agency) GDP is higher, it is estimated to 3.3% in 2009. 

According to (www.imf.gov ) the GDP for current price in national currency is 1, 152, 59 Billion, and GDP in current price in US Dollar is $12,185 Billion. The economic growth over last three years has average 5%.  The GDP based on Purchasing Power Parity (PPP) per capital was reported at $7163.80 in 2009, according to the International Monetary Fund (IMF) in 2015, Albania's GDP based on Purchasing Power Parity (PPP) per capita GDP is expected to be 9584.09 U.S. dollars.

In 2009, the world share of Albania's economy in total GDP, adjusted by Purchasing Power Parity, was 0.03 percent. In 2015, Albania's share of total GDP is forecasted to be 0.03 percent. This page includes a chart, historical data and forecast for Albania's GDP based on Purchasing Power Parity (PPP) per capita GDP growth of the economy has averaged around 5% over the last five years and inflation rates have remained depressed.

       As show in table 15 real GDP growth is increasing to 5.5% compare with 2009 it was 3.3%. The growth over recent years has been driven by structural transformation, base on movement of the labour from the low productivity agricultural sectors to service and construction, and to some extent to manufacture. 

	2007	2009	2010	2011	2012
Domestic Economy
Nominal (GDP)
(Billions of Lek)	967	1,153	1,243	1,364	1,503
Total (GDP)	10,833	11,843	11,854	12,674	13,729
Real (GDP) growth	6.0	3.3	5.5	6.5	7.1
Retail Price Inflating	2.9	2.2	3.0	2.9	3.0
Private sector share in GDP	75.0	75.0	75-80	80-85	80-85
Gross Domestic fixed investments	29.0	30.0	28.0	28.0	28.0
Private sector investment	24.0	21.0	21.0	21.0	21.0
Gross national savings	20.0	13.0	16.0	17.0	18.0
Public Finance % of GDP
Revenue and grants	25.7	26.0	26.6	26.8	26.9
Expenditure	29.6	33.4	30.6	29.9	29.9
Budget balance including grants	−3.9	−7.4	−4.0	−3.1	−3.0
Foreign financing	1.0	3.6	3.0	2.4	3.1
Central government debs	53.7	59.6	60.1	58.8	56.8
Public savings	3.0	2.0	1.9	2.2	2.5
Distribution of GDP% (of total)
Agriculture	21.0	21.0	21.0	21.0	21.0
Industry	20.0	20.0	20.0	20.0	20.0
Services	59.0	59.0	59.0	59.0	59.0

   Distribution GDP per sectors in long – term remaining stable since 2007 distribution GDP in agriculture is 21%, for industrial sectors is 20%, for services which is a main contributor is 59% (Figure . 17). Foreign financing remain low 3% compare to 2009 with 3.6% me this mean that the credit rating is low because Albania is consider a high risk investment country, as a result of high corruption in government and unstable political situation

3.2 A summary of international trade performance over the late three years. 

    The government has taken measures to curb violent crime, but this is still a serious national problem, with life expectancy still depressed by European standards. Its large reform packages are aimed at reining in the large gray economy and attracting foreign direct investment. Its economy is boosted by annual remittance inflows from its foreign workers constituting approximately 15% of Gross Domestic Product (GDP), mostly from Albanians resident in Greece and Italy. Its trade (imports and exports) deficit is still massive, however. The agricultural, agrarian, fisheries and farming sector, which accounts for over 50% of labour employment but only 20% of Gross Domestic Product (GDP), is put a ceiling on mainly to subsistence farming and small family businesses because of lack of modern equipment, no legal framework, small plots of land and no modern farming infrastructure and facilities.

     Energy shortages because of a reliance on hydropower, and antiquated infrastructure and facilities contribute to Albania's poor business environment and lack of success in attracting new Foreign Direct Investment (FDI). The completion of a new thermal power plant near Vlore has aided diversify generation capability, and plans to improve transmission lines between Albania and Montenegro and Kosovo would aid relieve the energy shortages. Also, with aid from European Union (EU) investment, the state is taking steps to improve the poor national transportation (road and rail) network, a long term impediment to maintained growth of the economy. Table 17 shows key macroeconomic indicators. According to (www.wto.com) the EU remains Albanians’ major trading partner, providing 64% of Albanian’s imports and providing 79.2% of export in 2009. Trade with Italy and Greece present the largest share of EU trade, with the combine 41.6% of imports and 70.2% of export (WB, IMF). 

     As shown in fig.18 there is a long run trade deficit which mean that import is high than export as a result of variable exchange rate and unstable economic situation in region. The fall in interest rate will lead to an outflow of short term capital from Albania, therefore, depreciation of the exchange rate will have affect rising demand for exports and fall in demand for imports. For instance: if exchange rate will fall further imports will buy before the rate does fall. On the other hand exporters, will hold back as long as possible before shipping their exports, therefore this will push exchange rate down. 

       According to (WFN, 2010) the long run trade balance reminds negative $−3.20bn in 2007, $ −3.40 billion in 2008, and $ −3.60billion in 2009. However, figure... shows that, import and export are toward achieving equilibrium. Albanian government are willing to reduce import since they lower standards of living. The money goes abroad rather than going into the domestic economy. Other factors affecting balance of trade in Albania are high cost of production and price rising, therefore; as a result a demand for goods will fall. 

3.3 A critical evaluation of the economy as a target market for export.

      Strategically located in Western Balkan Albania’s natural resources hydropower capacity large track of fertile agriculture land, over 360 km of mediteran coastline with excellent tourism and transport potential and valuable mineral deposit including copper, iron and crom. The countries liberal FDI regime grand’s foreign and domestic investors equal rights of ownership of local companies following the principles of ‘national treatment’. According to (www.fdi.com) the total amount of FDI for 2005-2009 was $3,202mn higher than $987mn 2000-2004. Meanwhile, inward FDI stock has sky rocketed from $247mn in 2000 to $3,537 in 2009 (Figure. 21). Part of transport ad media all sectors is accessible and 100% foreign equity is permitted. The former sectors are shard in 49% for both local and international air transport. While the low in media (No. 8410/1998) stipulate that no legal entitle or natural person can have more than 40% stake in television companies.  

       However, it takes only five days to establish foreign owned limited liability company, and also the minimum capital required for business start-ups is only Lek 100. Registration with the National Registration Centre take just a day and document required is online. Also foreign investors can open and maintain foreign currency. Investors can lease or owned privately and publicly head land; contracts are limited to 99 years for agriculture land and 30 years for other land. Other incentives are low corporate and personal income tax rate 10% and cost productivity workforce. Wage levels are among the lowest in the region. 

	2005	2007	2009
FDI inflows (net)	258	662	979
Total FDI stock	1,680	2,264	3,537
As (%) of GDP	20.0	20.9	30.0
As(%) of GDP	21.7	19.4	35.7

3.4 An analysis of the strengths and weaknesses of the economy as a location for Foreign Direct Investment

      Albania is one of the fasts-growing economies in the Balkan; however, it has been through a very difficult transition to free market economy. Albania government have signed the ratification of Stabilisation and Association Agreement in 2006.  In 2008 become a member of North Atlantic Treaty Organisation (NATO). Also, Albania in 2009 applied for European Union ‘candidate’ status. Another success story of this country in term of economic development is the strategic partnership with The World Bank for the fiscal year 2011-2014. Albania is moving toward Europe integration, which presents enormous future opportunities for economic growth through trade and foreign investments. However, the table below will show some economic strength and weakness that will help us to have a better understanding of whole picture. 

4. Chile a non-trade emerging economy 

4.1 A summary of macroeconomic performance over the last three years

       Chile is a Latin American country, it is ‘the place to be’ (fig. 22), the population is 17 Million, and 85% are urban – dwelling. According to (www.cnc.gov) labour forces are 7.30 million in 2009 and unemployment was 9.7%. The average annual per capital is 4.1% over a period of fifteen years (WBO, 2009). The economy was hit hard by financial crises, the growth between 1998 and 2003 decreased to an average 1.3%, as a consequence of these slowdown shortcomings in productivity and external vulnerability was evident.   However, OECD (2010) explained that, Chile’s economy returned to growth which means that more goods and services will be available for people to consume (Sloman, 1997).

       The strong macroeconomic framework provides a solid basis for the economy, with stabilization policies having enhanced the country's growth prospects. Table. 22 shows it has remained sustainable in 2007 and 2008, increasing in 2009 to 5.4% but, in 2010 5.3% which mean that, GDP fell only by 0.1%. The domestic demand peaked in 2005 reaching 11% and remained stable for 200-2007 before falling from 2009-2010. According to WBO (2009) Chile has consolidated macroeconomic stability through the adaption of flowing exchange rate and fully fledged inflation targeting. The government has supervised financial market and developed sound regulatory which have reduced the vulnerability of the financial sector.

     The value of output produced within the country over the twelve months period. The medium-term growth of economy could be higher than predicted from government (fig. 23)

Regards, the evolution of GDP in 2010 the expectations remains fixed at around 4.5% to 4.8% which is around trend output according to the central bank's estimations. The 4.25% target for the monetary policy rate in 12 months implies a steep tightening schedule from the current level of 1.5% and many analysts have voiced caution that interest rate will climb this much in a 12 month horizon. This view reflects both the fact that the central bank may be too linear in the way it has set its 12 month target interest rate as well as it reflects the market's perception that appreciation of the Peso may become an issue as the yield advantage of Chile increases relative to the USD and Euro. According to statistics Chile actual growth is positive, and there is a potential growth as a result of rich –resources and increase in efficiency which the resources are used. 

4.2 A summary of international trade performance over the late three years

     Trade has expanded despite an appreciation of the real exchange rate in the wake of the Copper boom (Fig. 27). Exports diversified beyond copper before the 1990s, although copper remained the principal export representing about 2/5 of export values before the sharp increase of the price of copper in 2003. The appreciation of the real effective exchange rate (REER) has only been around 22% during 2003-07. The relatively muted impact of the commodity boom on the REER is due in part to the ownership structure in the mining sector, where half of copper mines are owned by foreign companies, as well as to Chile’s macroeconomic framework. The structural fiscal rule has led to savings, mining leads the export with 49.46% and also agriculture, forestry and fishing are other sectors which play crucial role in Chile’s export industry (fig. 28).   

4.3 A critical evaluation of the economy as a target market for export

   The main risk factors for the economy are external, including a slowdown in global markets, increased global risk aversion, and disruptions in the energy supply and high oil prices. Chile, a small open economy, remains sensitive to regional and global developments and shifts in demand from its major trading partners. There is a strong association between GDP growth and external conditions. A slump in the market for primary products such as copper, or an interruption in capital flows can substantially reduce short-term growth. Out of the last six major economic recessions in Chile, five were precipitated by exogenous shocks. While Chile has been successful in reducing exposure to financial contagion and diversifying its exports base, its economy remains vulnerable to commodity price shocks and in particular to copper prices.

4.4 An analyses of the strength and weakness of the economy as a location for foreign direct investment. 

    As shown in figure below OECD countries tend to be more open towards FDI than non-OECD countries, as reflected in the lower average OECD score (0.095 versus 0.157 for the non-OECD countries). 

   The medium-term growth could be higher than projected in the authorities ‘baseline scenario’. Chile’s government has to encourage innovation and enhance educational quality and attainment for all Chileans. Providing adequate physical infrastructure for growth and improved competitiveness by strengthen of competition framework and functioning of labour and capital markets are other challenges for Chile government. 

    However, according to Foreign Investment Committee (FIC) the Chilean policy for reception of investments has always been based on simplicity, transparency and non discrimination towards foreign investors. The process of direct investment DL 600, offers security of investment. The government continues to develop and improve laws such as the simplification of administrative procedures or the increased appeal for credit. On a fiscal level, foreign investors benefit from a moderate income tax on companies and their capital can be repatriated without being taxed at the level of the invested funds. The country also offers a large range of investment solutions and has established a program called: "Chile Platform" in order to encourage investment. These courses have notably allowed the development of a new type of company ”The Simplified Limited Company" which allows a foreigner to create a business in Chile without needing a local partner.

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