Does Tariff Liberalization Promote Trade? Latin American Countries in the Long-Run (1900-2000)

Abstract:     
This paper estimates the effect of trade liberalization on import performance of selected Latin American countries (which account for about 85 percent of total Latin America imports). The novelty of this study is that it applies a long-term approach covering the whole XX century using times series and panel data analyses. The empirical exercise shows that the relationship between (lower) tariffs and import growth in Latin America cannot be taken for granted, as it often happens in the literature, and whenever it exists, it is not always quantitatively substantial. In particular, our analysis shows the existence of a long run relationship between tariffs and imports only from the second half of the XX century. It follows that trade liberalization appears effective in fostering Latin America's trade growth only when integrated within a wider process, implying a multilateral and negotiated approach to trade policy. In this sense, multilateral and regional agreements appear to have played a key role not only through tariff reduction but remarkably thanks to the creation of a rule-based system governing global trade relations, through which uncertainty was reduced and the spread of best practices promoted. This result would confirm the thesis of those who endorse the existence of a formalized trading system to guarantee tariff liberalization and foster trade growth.

Keywords: tariffs liberalization, import growth, trade integration process, time series, Latin America

JEL Classification: C22, F13, F15, N7

Accepted Paper Series