International trade and economic growth

Abstract

This paper examines the effects of international trade on Latin American countries" economic growth, utilizing recent panel cointegration testing and estimation techniques. Annual panel data on 22 Latin American countries" macroeconomic variables over the period 1960-2010 are employed in empirical analysis. Using various heterogeneous panel cointegration and panel causality tests, a reverse uni-directional relationship between trade and growth is found. We could not find evidence for the neoclassical export-led growth hypothesis for the Latin American economies over the sample period. We find evidence for a reverse causation running from output growth to trade. Some explanations and policy implications are provided for the empirical results.