Foreign Trade and Income Convergence in Latin America

Abstract

This paper explores the variation in inequality as a measure of convergence or divergence in per capita income. It is proposed to decompose this variation into different selected categories of foreign trade, especially due to technological intensity and intraregional and interregional trade. The first category of selection helps to understand how the different stages of development of foreign trade are associated with the convergence of per capita income between nations. The second perception shows whether regional integration actions have had any effect on the region’s convergence. As a result, there is evidence of absolute convergence for the sample of Latin American countries and territories selected in the 1995–2017 period. The convergence was on the order of 16.7% and became more intense after 2004; however, it decelerated in the most recent period which is characterized by a phase of lower growth. The important participation of foreign trade in determining regional asymmetries in Latin America is confirmed and a significant effect of intraregional trade in the sense of reducing inequality.