Trade Complementarity and the Balance of Payments Constraint Hypothesis: A New Free Trade Agreement between Mexico and South Korea

Luis Quintana-Romero, Nam Kwon Mun, Roldán Andrés-Rosales and José Álvarez-García
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Luis Quintana-Romero: Department of Economics, Facultad de Estudios Superiores Acatlán UNAM, Estado de Mexico 53150, Mexico
Nam Kwon Mun: Department of Latin American Studies, GSIAS, Hankuk University of Foreign Studies, Seoul 130-791, Korea
Roldán Andrés-Rosales: Department of Administration, Facultad de Estudios Superiores Cuatitlán UNAM, Estado de Mexico 54714, Mexico
José Álvarez-García: Financial Economy and Accounting Department, Faculty of Business, Finance and Tourism, University of Extremadura, 10071 Cáceres, Spain
Authors registered in the RePEc Author Service: Luis Quintana Romero

Mathematics, 2020, vol. 8, issue 10, 1-21

Abstract: Market diversification is one of the keys to success in the new era of world trade. Highly competitive countries have accomplished positive and sustained growth rates by not depending on a single market for their exports and imports. In Mexico, on the contrary, 80% of exports and 45% of imports concentrate in the United States. The South Korean market represents an opportunity for the Mexican economy, as the relationship between the two countries has strengthened in recent decades. This opportunity would promote greater economic growth for both countries if they reached a Free Trade Agreement, as we show in this work. The aim of this research is to assess the complementarity between these countries and estimate their external long-term equilibrium using the Thirlwall trade restriction model. Results confirm the existence of trade complementarity between the two economies and show that these are able to achieve long-term equilibrium in the external sector. Additionally, the Mexican economy would not face balance of payment constraints for growth when trading with South Korea, as it currently does with the United States.

Keywords: international trade; exports; imports; Thirlwall law; cointegration; economic growth; trade complementarity; free trade agreement; South Korea; Mexico (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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