Trade Liberalisation, the Balance of Payments and Growth in Latin America

Penélope Pacheco-López () and Anthony Thirlwall

Studies in Economics from School of Economics, University of Kent

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 paper we consider whether trade liberalisation in seventeen countries of Latin America has improved the trade-off between 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 seventeen 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.

Keywords: Latin America; trade liberalisation; growth; balance of payments (search for similar items in EconPapers)
JEL-codes: C22 C23 F13 F32 F43 (search for similar items in EconPapers)
Date: 2005-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Trade Liberalisation, the Balance of Payments and Growth in Latin America (2005)
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