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Trade Liberalisation, the Balance of Payments and Growth 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 paper we consider whether trade liberalisation in seventeen countries of Latin America has improved the trade-off between 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 seventeen 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, 2005. "Trade Liberalisation, the Balance of Payments and Growth in Latin America," Studies in Economics 0505, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:0505
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    Cited by:

    1. Penelope Pacheco-Lopez & A.P. Thirlwall, 2005. "Trade Liberalisation, the Balance of Payments and Growth in Latin America," Studies in Economics 0505, School of Economics, University of Kent.
    2. Ahmad Jafari Samimi & Ramezan Hosseinzadeh, 2011. "Foreign Trade and Economic Growth: Evidence of Thirlwall’s Law in Iran," Journal of Social and Development Sciences, AMH International, vol. 2(2), pages 81-88.
    3. Kurtovic, Safet & Halili, Blerim & Maxhuni, Nehat, 2016. "Liberalization of Trade with Leading Trade Partners: Some Evidence from Bosnia and Herzegovina," MPRA Paper 75053, University Library of Munich, Germany, revised 04 Nov 2016.

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    More about this item

    Keywords

    Latin America; trade liberalisation; growth; balance of payments;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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