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Trade Liberalisation and the Trade-Off Between Growth and the Balance of Payments in Latin America

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  • Penelope Pacheco-Lopez
  • A. P. Thirlwall

Abstract

The broad purpose of trade liberalisation is to raise the rate of growth of countries on a sustainable basis, consistent with the achievement of other macroeconomic objectives. In this article we consider whether trade liberalisation in 17 countries of Latin America has improved the trade-off between gross domestic product (GDP) growth and the trade balance, allowing the countries to grow faster without sacrificing foreign exchange. We find that in the aftermath of liberalisation, the majority of countries did grow faster, but at the expense of a deteriorating trade balance. Testing formally for the impact of trade liberalisation in a full model of trade balance determination, we find that only in Chile and Venezuela has the trade-off unequivocally improved. In other countries there has been a significant deterioration or no change. Nine out of the 17 countries have grown faster post-liberalisation than pre-liberalisation but, except for Chile and Venezuela, at the expense of a wider trade or current account deficit.

Suggested Citation

  • Penelope Pacheco-Lopez & A. P. Thirlwall, 2007. "Trade Liberalisation and the Trade-Off Between Growth and the Balance of Payments in Latin America," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(4), pages 469-490.
  • Handle: RePEc:taf:irapec:v:21:y:2007:i:4:p:469-490
    DOI: 10.1080/02692170701474587
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    References listed on IDEAS

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    1. Rob Vos & Lance Taylor & Ricardo Paes de Barros (ed.), 2002. "Economic Liberalization, Distribution and Poverty," Books, Edward Elgar Publishing, number 2593.
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    Cited by:

    1. Natalya Ketenci, 2017. "The Effect of the European Union Customs Union on the Balance of Trade in Turkey," Foreign Trade Review, , vol. 52(4), pages 219-232, November.
    2. Gabriela Dutrénit & Juan Carlos Moreno-Brid & Martín Puchet & Eduardo Moreno, 2014. "Economic growth, innovation and inequality in Latin America: improvements, setbacks and pending issues post-Washington Consensus," Chapters,in: National Innovation Systems, Social Inclusion and Development, chapter 11, pages 304-348 Edward Elgar Publishing.
    3. Vaqar Ahmed & Cathal O'Donoghue, 2010. "External Shocks in a Small Open Economy: A CGE - Microsimulation Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(1), pages 45-90, Jan-Jun.
    4. Jesus Felipe & J. S. L. McCombie & Kaukab Naqvi, 2010. "Is Pakistan's Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth," Oxford Development Studies, Taylor & Francis Journals, vol. 38(4), pages 477-496.
    5. Ibarra, Carlos A., 2011. "Import elasticities and the external constraint in Mexico," Economic Systems, Elsevier, vol. 35(3), pages 363-377, September.
    6. Lanre Kassim, 2013. "The Impact of Trade Liberalisation on Export Growth and Import Growth in Sub-Saharan Africa," Studies in Economics 1310, School of Economics, University of Kent.
    7. Ibarra, Carlos Alberto, 2011. "Maquila, currency misalignment and export-led growth in Mexico," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    8. Aliyev, Khatai, 2014. "Expected Macroeconomic Impacts of the Accession to WTO on Azerbaijan Economy: Empirical Analysis," MPRA Paper 55096, University Library of Munich, Germany.
    9. Hadili, Abduraawf & Raab, Roman & Wenzelburger, Jan, 2016. "Trade Liberalization in Arab Maghreb Union Countries," MPRA Paper 71123, University Library of Munich, Germany.
    10. repec:eee:streco:v:41:y:2017:i:c:p:1-12 is not listed on IDEAS
    11. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.

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