Chile, a small, open economy with traditionally strong resource-based production, has recorded an impressive economic performance over the last two decades. Growth of gross domestic product (GDP) per capita accelerated at a remarkable 5 to 6% a year in the 1990s, more than twice the long-term trend of 2.4% over the preceding 40 years. After a short-lived period of stagnation at the end of the 1990s, growth picked up again sharply in 2004 and 2005, partly owing to favourable conditions in Chile’s main export markets.

The economic performance of Chile, a small, open economy with a traditionally strong base in the production of commodities linked to natural resources, has been impressive over the last two decades. Between 1988 and 1997, it was particularly strong, with real GDP growing at an average annual rate of 7.9%. During this period, Chile’s “growth acceleration” (Hausmann et al., 2004) was spectacular. From 1984 to 1997 GDP per capita grew by 5- 6% a year, more than twice the long-term trend of 2.4% of the preceding 40 years (OECD, 2003). As a result, Chile not only stood out in the Latin American region but was one of the world’s best-performing economies. High growth was associated with a significant rise in total factor productivity (TFP).

R&D intensity is a key input to innovation and, despite its limitations,7 one of the indicators most widely used to compare innovation activities in different countries. Chile’s total R&D intensity – the ratio of gross expenditure on research and development (GERD) to gross domestic product (GDP) – is 0.68% (2004), less than one-third of the OECD average of 2.25% (2003). At 0.31% of GDP, its business enterprise expenditure on R&D (BERD) is even weaker relative to the OECD average of 1.53%. While R&D intensity has risen steadily since the 1980s in the OECD area, spending on R&D has remained fairly stable in Chile, although data limitations call for caution when undertaking international comparisons (Table 2.1) .

This chapter describes the key players and processes in Chile’s innovation system (“performers” in Figure 3.1). It focuses on the actors performing research and development (R&D) and innovation activities, mainly the business sector, the universities, public research institutes and intermediary organisations involved in both technological development and diffusion. Interactions among these groups are examined. The role of government in steering the public research system and in providing basic incentives, institutional frameworks and support measures for business R&D and innovation is examined in Chapter 4.

For a long time, Chile’s innovation system was rudimentary, having developed through a series of ad hoc decisions in the absence of a strategic vision for the role of innovation in economic development and for the role of government in its promotion. It consisted mainly of a funding agency which supported mostly academic research and financed scholarships and a set of publicly owned or funded technological institutes that performed public missions and provided some technological services to the industrial and agricultural sectors. A turning point occurred in the early 1990s, following the reestablishment of democracy, when policies explicitly aimed at strengthening capabilities in the areas of science, technology and innovation in the various sectors of production were first introduced. Chile is currently going through a new, probably more fundamental, transition. A growing political awareness of the importance of innovation for the country’s further catching-up has motivated three bold decisions: the creation of an Innovation Council for Competitiveness entrusted with the mission of proposing guidelines for a long-term national innovation strategy; the introduction of a specific mining tax to increase resources available to implement this strategy; and the introduction of an R&D tax incentive to motivate private-sector participation.