Trade Openness, Economic Growth and the Global Financial Crisis of 2007–2009 in Latin America

Abstract

AbstractThis paper examines the relationship between bilateral trade openness and per capita gross domestic product for 15 Latin American countries during the financial crisis of 2008. It is employed an augmented gravity model of trade for the pre‐crisis, during‐crisis and post‐crisis periods (2004–2006, 2007–2009 and 2010–2012, respectively). Geographical characteristics and democracy rates of countries are used to instrument for average bilateral trade volumes. Different measures of trade openness are tested, and mixed results are identified. First, a slightly positive relationship between trade openness and growth is found when considering only Latin American countries. Second, after removing outliers and considering all importer countries, a negative relationship between the variables is found. © 2019 John Wiley & Sons, Ltd.