Do Geopolitical Risks Impact Trade Patterns in Latin America?

Abstract

ABSTRACT The rapid rise of China as a major economic power, characterized by its expanding global trade and financial connections, has significantly heightened geopolitical tensions, particularly with the US. The primary objective of this study is to examine the ramifications of such geopolitical risks (GPR) on trading patterns within Latin America, employing a gravity model. The selection of Latin America stems from its ongoing transformation in power dynamics, with China emerging as the second largest partner, posing substantial competition to the US, which has historically been the region’s primary trading partner. This region has also emerged as an attractive investment and trade destination with abundant natural resources and a growing middle class. By focusing on seven of the largest economies in Latin America – Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela – from 2000 to 2020, our study yields valuable insights into the influence of GPR on trade dynamics. The findings underscore the overall detrimental impact of GPR on trade, with a disproportionately adverse effect on imports. This study represents a significant contribution by bridging existing gaps in the literature, particularly within the underexplored context of Latin America, while providing crucial guidance for policy formulation and informing future research endeavours.