Trade liberalization, the income elasticity of demand for imports, and growth in Latin America

Penélope Pacheco-López () and Anthony Thirlwall

Journal of Post Keynesian Economics, 2006, vol. 29, issue 1, 41-61

Abstract: This paper applies the balance-of-payments-constrained growth model to 17 countries of Latin America over the period 1977-2002. The crucial parameter to estimate is the income elasticity of demand for imports, which is done for Latin America as a whole and for individual countries. As well as estimating over the whole period, the technique of rolling regressions is also used to test whether a trend increase can be discerned as a result of trade liberalization. A trend increase is found for Latin America as a whole and for some individual countries, and the balance-of-payments equilibrium growth rate is a good predictor of growth performance in nine of the 17 countries. There is no evidence that the balance-of-payments equilibrium growth rate has increased in Latin America as a result of trade liberalization.

Date: 2006
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DOI: 10.2753/PKE0160-3477290103

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