Global Competitive Advantage Based on Pioneering Economic Reforms: The Case of Chilean FDI

This paper hypothesizes that Chilean firms had a competitive advantage in operating businesses in other Latin American countries because of their knowledge of business strategy during economic reform. This hypothesis is explained through case studies of Provida, a Chilean pension fund, and Endesa, a Chilean electricity generator, and then tested empirically using data on foreign affiliates of Chilean public companies. Controlling for industry, year, and size effects, the analysis shows that foreign affiliates of Chilean companies are more profitable than other companies operating in the same countries. This difference between the profitability of Chilean affiliates and other companies decreases over time, suggesting that the Chilean advantage is fleeting.