Trade Liberalisation, the Income Elasticity of Demand for Imports and Growth in Latin America

This paper applies the balance-of-payments-constrained growth model to 17 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 and 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 liberalization. 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 17 countries. There is no evidence that the balance-of-payments equilibrium growth rate has increased in Latin America as a result of trade liberalization.