In recent years investors have started to focus their attention on emerging economies. Investing in emerging economies has unique risks relating to currency, inflation, institutions, liquidity, and politics, but such investments offer diversity and in recent years have been a source of rapid growth.

The economy of Chile is ranked number 34 on the Global Competitiveness Index making it one of the most competitive emerging economies. Investors seeking to capitalize on developments in the Chilean economy need to understand the aspects of the external sector that make Chile unique.

The Size of Chile’s Economy
When assessing opportunities in emerging economies, investors need to look at the size and the growth of the economy to help determine the value of any potential investment. One indicator of the size of a country’s economy is its gross national income (GNI), or GNI per capita.

Investors interested in Latin American countries can compare a country in which they have interest to the countries in the LA6. The LA6 is a group of the six largest Latin American economies that the IMF uses in its models to monitor activity in Latin America. The group, which accounts for 90 percent of Latin American output, consists of Argentina, Brazil, Chile, Colombia, Mexico, and Peru.

In each of the past ten years, Chile has exceeded the GNI per capita of all of the other LA6 countries in terms of purchase price parity dollars. The GNI per capita of Mexico was close to that of Chile from 2003 to 2005, but in 2006 the GNI per capita in Chile began to separate from Mexico. (Exhibit 1)

During the global financial crisis, the GNI per capita growth rate slowed for all of the LA6 countries. In 2009, GNI per capita growth in Chile was the second lowest of the LA6 with a rate of -.72%. However, Chile rebounded quicker than the other members of the LA6. By 2012 Chile’s GNI per capita had grown to approximately $21.3K while the next closest LA6 country, Mexico, had only grown to approximately $16.7K. (Exhibit 1 & 2)

Another way to look at Chile is to compare it to other developing countries that are popular among investors such as Brazil, Russia, India, and China or the BRIC countries.

Over the past ten years, Chile’s relationship to the BRIC in terms of the GNI per capita growth rate and purchase price parity is similar to its relationship with the other LA6 countries. Chile’s growth rate was hurt by the recession more than the other BRIC countries except Russia, and Chile recovered quicker than all of the BRIC countries. Russia and Chile had similar levels of GNI per capita purchase price parity from 2003 to 2012. By 2012, the GNI per capita level in both Russia and Chile had grown to over $20K, while the GNI per capita of the next closest BRIC country, Brazil, had yet to reach $12K. (Exhibit 4 & 5)

While Chile’s relatively high level of GNI per capita is attractive to investors, it ignores Chile’s skewed income distribution. It also ignores the total size of the economy. Looking at total GNI provides a better view of the size of the economy.

Over the past ten years Chile has had the second lowest total GDP of the LA6 countries in terms of current U.S. dollars and is far lower than the BRIC countries.

While Chile’s GNI grew from $73B in 2003 to $255B in 2012, the LA6 country with the largest GNI, Brazil, grew from $534B to $2.2T and the country with the largest GNI in among the BRIC countries, China, grew from $1.6T to $8.2T. (Exhibit 3 & 6)

Industry Mix in The Chilean Economy
In addition to size, investors evaluating Chile may also consider the industries that are driving economic growth. In Chile, the mining industry, specifically copper, is consistently a top contributor to GDP. Over the past four years copper mining has contributed from a high of 14.7% of GDP in 2010 to a low of 11.6% in 2012 as it has trended downward. Over the same time period, the manufacturing sector has made