Economic Integration and Trade Competitiveness in Latin America

There are large differences in gross domestic products by sectors among Latin American countries, and the majority of these differences are due to the value of industrial and service sectors. The structural reforms in countries of Latin America has broadly focused in the five major areas comprising international trade, financial markets, labor markets, and the generation and use of public resources. Consequently the financial development has improved, especially the depth of financial intermediation, private sector participation in banking, and the size and activity of stock markets. The economic integration and structural reforms in Latin America considered that import substitution in manufacturing sector would be synonymous with industrialization, which in turn was seen as the key to development. As far as the efficient generation and use of public resources are concerned, much has been done to make the value-added tax system efficient and to privatize public enterprises. In response to the liberalization of economies, which has been followed by a significant increase in their imports, was found primarily due to lower inflation, lesser government intervention, and fewer trade barriers. International trade has been the key indicator of the overall economic growth of Latin American countries. The paper reviews the approach to trade policy in early development research and evolution of thoughts integrating the economic and structural reforms in Latin America. The reference period for analysis of spatial and temporal data is 1950-2003. The aspects of trade and growth and problems of Balance of Payments and their relation with macroeconomic policy have also been discussed in the paper. Further, this paper analyzes economic integration between two economies: one central, with a large local market, and the other peripheral, with a small local market. Each economy has an imperfectly competitive manufacturing sector. It has been observed in the discussion that the trade liberalization creates a strong incentive for the imperfectly competitive industry to concentrate in the central region, near the large market. Additionally, the role of supporting policies to assure the success of trade liberalization is analyzed in the paper.