Trade reforms and trade patterns in Latin America

Summary The relationship between trade and economic growth is nuclear to the literature of economic development. Due to the importance of the external sector to developing countries, most development models have trade regimes and the related system of incentives as central determinants of economic performance. Also, there exists an extensive empirical literature on exports and growth with mixed results. Many studies find evidence of association between exports or exports growth and economic growth although the direction of the causality has not yet been clearly established. Moreover, other studies qualified those results since linkages between exports and economic growth depended on threshold variables. In other words, economic growth tended to be affected by export performance after countries have achieved some minimum level of development.(1); On the other hand, recent empirical studies that have attempted to relate trade orientation and economic performance have been criticized for the misspecification of some variables and the ambiguity of the results, in spite of the sophistication of the empirical models employed (Rodríguez, 1999); In this paper, following the ECLAC tradition, we consider the composition of exports as a crucial determinant of the relationship between exports and growth although our purpose is basically descriptive(2);. We examine the trade performance of 16 Latin American countries over the past 20 years using a modified Pavit-Guerrieri classification to group trade data according to the technological content of the production functions of individual goods. Simple indicators of revealed comparative advantage of net contribution to trade balance of those groups of products are used to describe changes in trade patterns that followed trade reforms in the most advanced economies in the region. We discuss some of the difficulties in classifying goods according to their production functions when production sharing prevails in international trade. Hence, the presence of a given product in the export list of a country does not mean that the country master the whole production process of that particular good. Only the labour-intensive segments may be domestically produced in the country. The following section is a brief review of the literature on trade composition and growth. Section II discusses the classification employed in the empirical part and its limitations. Section III describes the indicators used to describe trade patterns in Latin American countries and Section IV presents the results for 16 Latin American countries, with special emphasis on major countries such as Argentina, Brazil, Chile and Mexico. Trade reforms seem to have affected trade patterns of those advanced developing countries by strengthening comparative advantages based on natural resources endowments, and also by replacing imported inputs for domestically produced inputs. Section V presents some concluding remarks and areas for further research. **** (1); For a review of the literature, see Greenaway, Morgan and Wright (1999, pp. 41-51);. (2); This paper was presented at the IV Meeting of the Latin American and Caribbean Economic Association (LACEA);, Santiago de Chille, 23 october 1999.