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Trade linkages and growth in Latin America: A time-varying SVAR approach

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  • Winkelried, Diego

    (Banco Central de Reserva del Perú)

  • Saldarriaga, Miguel

    (Banco Central de Reserva del Perú)

Abstract

This paper examines how shocks originated in large economies around the globe have transmitted to the growth rates of Latin American countries. For this purpose, a highly parsimonious structural VAR model – identified through bilateral trade linkages – is proposed, tested, estimated and simulated. Since trade weights evolve through time, the effect of shocks are time-varying. Thus, we are able to quantify how growth in the region has been affected by tighter trading linkages with fast-growing emerging economies, and how it has responded to a new world trade structure, featuring China as a major player. It is found that about half of the vigourous growth reported in Latin American countries by the end of the 2000s can be attributed to (direct and especially indirect) multiplier effects induced by the spectacular growth of the Chinese economy over the same period.

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Bibliographic Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2012-011.

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Date of creation: Apr 2012
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Handle: RePEc:rbp:wpaper:2012-011

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Keywords: Latin America; China; trade linkages; time-varying structural VAR;

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  1. Cesa-Bianchi, A. & Pesaran, M. H. & Rebucci, A. & Xu, T., 2011. "China’s Emergence in the World Economy and Business Cycles in Latin America," Cambridge Working Papers in Economics 1150, Faculty of Economics, University of Cambridge.
  2. Tilak Abeysinghe & Kristin J. Forbes, 2001. "Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia," NBER Working Papers 8600, National Bureau of Economic Research, Inc.
  3. Gulasekaran Rajaguru & Tilak Abeysinghe, 2004. "Quarterly real GDP estimates for China and ASEAN4 with a forecast evaluation," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 431-447.
  4. Winkelried, Diego, 2011. "Exchange rate pass-through and inflation targeting in Peru," Working Papers 2011-012, Banco Central de Reserva del Perú.
  5. Mutl, Jan, 2009. "Consistent Estimation of Global VAR Models," Economics Series 234, Institute for Advanced Studies.
  6. Abeysinghe, Tilak, 2001. "Estimation of direct and indirect impact of oil price on growth," Economics Letters, Elsevier, vol. 73(2), pages 147-153, November.
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