ECONOMIC GROWTH AND THE BALANCE-OF-PAYMENTS CONSTRAINT IN LATIN AMERICA AND CARIBBEAN: A PANEL DATA ANALYSIS

Abstract

The main focus of this paper is to assess the relationship between international trade and economic growth in Latin America and the Caribbean for the period 1980-2005. We use panel data models to test Thirlwall’s law. Our results show that a growth rate of about 3% per year is compatible with foreign trade equilibrium. Although this rate is above the average growth observed in the period, it is not sufficient to allow the countries in the region to overcome its current stage of socio-economical underdevelopment. We also show that despite the stability of the income-elasticity of imports in the last decades, there has been an autonomous rise in the demand for imports in the region from the 1990s onwards.