The acceleration in foreign direct investment (FDI) flows during the 1990s was also characterized by an increasing proportion of these funds directed to the developing nations, including the countries of Latin America and the Caribbean. The increase in net FDI flows channeled to these countries, particularly Chile, has been nothing short of spectacular when you factor in the relatively small size of Chile's economy. This article analyzes the recent evolution, rationale, and major economic and institutional determinants of FDI flows to Chile. Chile was one of the earliest countries in the region to adopt and implement market-based reforms, albeit at great social and political cost. The estimates suggest that FDI flows will be attracted on a long-term basis to countries such as Chile provided that policy makers avoid sharp depreciations of the real exchange rate that lower the real (dollar) rate of return on FDI investments.