Why did Chile’s economy decline after the nitrate market fell during World War I?

Chile’s economic decline following the collapse of the nitrate market during World War I was rooted in the country's historical reliance on a narrow range of mineral and agricultural exports.1

During the 19th century, the Chilean economy grew significantly based on the export of nitrates, copper, and agricultural products. Because the nation’s economic structure was built upon these few exports while relying heavily on imported manufactured goods, the sudden drop in nitrate demand left the country vulnerable. This downturn intensified the subsequent impact of the Great Depression on Chile.1

The crisis exposed the risks of this early economic structure, prompting the government to shift toward socialistic programs and state-led industrialization. To reduce dependence on imports, the state established the Corporación de Fomento de la Producción (Corfo) to develop import substitution industries and eventually assumed greater control over key sectors, including banking and copper mining.1