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

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.Latin America, trade liberalisation, growth, balance of payments, C21, C22, F13, F32, F43,

A note on intermediate imports and the BPCG model in Mexico

“…0.14, 0.14 0.13, 0.08 0. Moreno-Brid (1999), López and Cruz (2000), Ocegueda (2000), Guerrero de Lizardi (2003), Cardero and Galindo (2005), Pacheco- López (2005), Moreno-Brid et al (2005), and Pacheco- López and Thirlwall (2007). of manufactured exports directly explains a large part of the increase in the ratio of intermediate imports to GDP (see Ibarra 2010a).…”

On the Transmission Mechanism of Monetary Constraints to the Real Side of the Economy

“…This was immediately accompanied by a quick deterioration of the external accounts as a result of the faster growth of imports (see Pacheco-López & Thirlwall, 2005). The BoP approach to economic growth would imply that lower income growth rates in the following years were a necessary condition for maintaining the combination of equilibrium in the BoP and the unilaterally liberalised trade.…”

Exports, capital inflows, relative prices, and income growth in South Korea: An application of the balance of payments constraint growth model

“…Following the works of Thirlwall and Hussain (1982), Pacheco-Lopez and Thirlwall (2007), Pacheco-Lopez (2005), and Santos-Paulino and Thirlwall (2004), I use the BPC growth model that starts from the balance of payments accounting identity:…”

“…Other studies by Ciftcioglu and Karaaslan (2006) ;Feasel, Kim, and Smith (2001); Krishan, Arbenser, and Klein (2008); and Lim (1987) have extended the basic ELG model by incorporating additional variables such as exports instability, investment, savings, terms of trade, and capital stock. 1 Empirical studies by Andersen (1993), Atesoglu (1993), Bairam and Dempster (1991), Darku (2012), Hussain (1999), Pacheco-Lopez (2005), Pacheco-Lopez and Thirlwall (2006Thirlwall ( , 2007, Perraton (1990Perraton ( , 2003, Santos-Paulino and Thirlwall (2004), and Thirlwall and Hussain (1982) have used the model and data on various countries to analyse the determinants of growth and yielded mixed results. In this current paper, we use the balance of payment constraint (BPC) growth model to examine the importance of exports, capital inflows, and relative prices to the income growth process in South Korea.…”