Relationship between Trade Openness and Economic Growth in Latin America: A Causality Analysis with Heterogeneous Panel Data

27 Pages Posted: 25 Apr 2018

See all articles by Adolfo Roquez‐Diaz

Adolfo Roquez‐Diaz

Universidad Complutense de Madrid (UCM) - Faculty of Economics and Business Administration

Lorenzo Escot

Escuela Universitaria Estadística - Universidad Complutense de Madrid

Date Written: May 2018

Abstract

We empirically analyze the causality relationship between economic growth and international trade using new advancements in the econometric methodology for heterogeneous panel data applied to Latin American countries. First, we test for dependencies between the units of cross‐section (countries) and then we test for cointegration between growth and openness. Finally, we test for Granger causality using a heterogeneous panel data test. The results reject the hypothesis of general, unidirectional, and homogeneous relationship between trade openness and economic growth in Latin American countries as a group. However, considering heterogeneity, we found significant evidence of causality from trade liberalization to economic growth in Chile, Peru, Nicaragua, and Uruguay; we have found bidirectional causality in Mexico and Honduras; and a causal relationship from economic growth to trade liberalization in Colombia, Costa Rica, Guatemala, and the Dominican Republic.

Suggested Citation

Roquez‐Diaz, Adolfo and Escot Mangas, Lorenzo, Relationship between Trade Openness and Economic Growth in Latin America: A Causality Analysis with Heterogeneous Panel Data (May 2018). Review of Development Economics, Vol. 22, Issue 2, pp. 658-684, 2018, Available at SSRN: https://ssrn.com/abstract=3168228 or http://dx.doi.org/10.1111/rode.12358

Adolfo Roquez‐Diaz (Contact Author)

Universidad Complutense de Madrid (UCM) - Faculty of Economics and Business Administration

School of Business Administration
Somosaguas Campus
Madrid, Madrid 28223
Spain

Lorenzo Escot Mangas

Escuela Universitaria Estadística - Universidad Complutense de Madrid ( email )

Av Puerta de Hierro s/n
Madrid, Madrid 28040
Spain

HOME PAGE: http://www.ucm.es/centros/webs/aedipi

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
6
Abstract Views
160
PlumX Metrics