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Where Did the Trade Liberalization Drive Latin American Economy: A Cross Section Analysis

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  • Rajagopal

    (Monterrey Institute of Technology & Higher Education, ITESM, Mexico City Campus, Mexico DF)

Abstract

The institutional reforms towards trade liberalizations in Latin America during the 1980s and the 1990s have introduced a good measure of import competition, but trade policies alone are not sufficient to create a competitive environment in an economy. The countries in Latin America have not had much experience with competition policies in the past. Combined with restrictive trade policies, the absence of competition policies has often led to monopolized domestic markets. The balance of payments crisis shocks have also contributed significantly to differences in growth performance and associated with a large decline of growth rates and develops into another crisis in the future. The trade competitiveness among the countries of Latin American region have revealed higher export sensitivity to world commodity prices, domestic absorption and economic activity combined with a high income elasticity of imports. This paper attempts to analyze the extent of trade competitiveness and its impact on the economic welfare measures in the Latin American countries. The analysis concentrates on the total factor productivity and exports in the countries of the region in reference to the economic growth pattern emerged during 1950-2003. The Cobb-Douglas function has been used to measure the total factor productivity and Nash equilibrium has been calculated to measure the economic welfare gains among the trading blocs in the Latin American region. The results of the study determine that international liquidity, financial soundness, real exchange rate depreciation and monetary policy play a critical role in reducing output losses and increasing the economic welfare gains.

Suggested Citation

  • Rajagopal, 2005. "Where Did the Trade Liberalization Drive Latin American Economy: A Cross Section Analysis," Econometrics 0504003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpem:0504003
    Note: Type of Document - pdf; pages: 25
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    References listed on IDEAS

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    1. Joseph Joyce & Linda Kamas, 2003. "Real and nominal determinants of real exchange rates in Latin America: Short-run dynamics and long-run equilibrium," Journal of Development Studies, Taylor & Francis Journals, vol. 39(6), pages 155-182.
    2. Talan Iscan, 1998. "Exports and capital accumulation: some empirical evidence from the Mexican manufacturing industry," Applied Economics Letters, Taylor & Francis Journals, vol. 5(6), pages 355-360.
    3. Perroni, Carlo & Whalley, John, 1996. "How Severe Is Global Retaliation Risk under Increasing Regionalism?," American Economic Review, American Economic Association, vol. 86(2), pages 57-61, May.
    4. Eva Paus & Nola Reinhardt & Michael Robinson, 2003. "Trade liberalization and productivity growth in latin american manufacturing, 1970-98," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(2), pages 127-127.
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    Cited by:

    1. Acharya, Sanjaya, 2011. "Making unilateral trade liberalisation beneficial to the poor," Socio-Economic Planning Sciences, Elsevier, vol. 45(2), pages 60-71, June.
    2. Christopher E.S. WARBURTON, 2012. "ISI and New Industrial Conditions in Latin America and Africa," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(2).

    More about this item

    Keywords

    Trade liberalization; institutional reforms; total factor productivity; regional growth; trading blocs; foreign direct investment; economic welfare; Latin America;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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