School of Economics

2005 Discussion Papers

School of Economics Discussion Paper 05/06
September 2005

Trade Liberalisation, the Income Elasticity of Demand for Imports and Growth in Latin America
Penélope Pacheco-López and A.P. Thirlwall

School of Economics
University of Kent at Canterbury


This paper applies the balance of payments constrained growth model to seventeen 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, as well as 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 liberalisation. 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 seventeen countries. There is no evidence that the balance of payments equilibrium growth rate has increased in Latin America as a result of trade liberalisation.

JEL Classification: C21; C22; F13; F32; F43

Keywords: Latin America; Trade Liberalisation; Growth; Balance of Payments

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