Foreign trade and economic growth: time series evidence from Latin America

Abstract

This paper extends our understanding of the relationship between trade and growth by emphasizing time series evidence rather than the more traditional aggregate cross-section evidence from past studies. Cross-section studies obscure intercountry differences and sacrifice revealing information about dynamic behaviors within countries. Also, the nonstationary nature of many time series makes the use of period averages inappropriate. The use of time series data introduces other difficulties, however, and our analysis pays close attention to the possibility of spurious regressions, nonstationarity and cointegrating relationships among variables. Seventeen Latin American economies are examined, and a mixture of model forms must be applied to deal with the variety of temporal behaviors. The results confirm a positive relationship between export growth and aggregate economic growth over time for the majority of the seventeen countries.