Trade liberalization and the strongbalancestrong of payments constraint.pdfVIP

Trade liberalization and the balance of payments constraint with intermediate imports: the case of Mexico revisited a b Robert A. Blecker , Carlos A. Ibarra December 2012 ABSTRACT Previous studies have found that a tightening of the balance of payments (BP) constraint can explain the slowdown in Mexico’s growth after its trade liberalization in the late 1980s. This paper develops a disaggregated model of the BP constraint with two types of exports (manufactured and primary commodities) and two types of imports (intermediate and final goods). Econometric estimates (including tests for structural breaks) show that the BP- equilibrium growth rate did not fall, but instead rose in the post-liberalization period, so this model cannot account for the country’s growth slowdown. Instead, the analysis points to the need to consider the real exchange rate as well as internal obstacles and policies. Keywords : Mexican economy; balance-of-payments constraint; trade liberalization; intermediate imports JEL classifications : F43, F14, E12, O24 a Department of Economics, American University, 4400 Massachusetts Ave., N.W., Washington, DC 20016, USA, blecker@american.edu. [Corresponding author: Tel. +1-202-885-3767; Fax +1-202-885-3790] b Departamento de Economía, Universidad de las Américas Puebla, Sta. Catarina Mártir s/n, Cholula, 72810 Puebla, Mexico, carlos.ibarra@udlap.mx. 1. Introduction During the past two decades, a large empirical literature has applied the model of balance-of-payments-constrained growth (BPCG), originally developed by Thirlwall (1979),1 to a variety of countries and situations. In recent years, the model has been applied to countries as diverse as India (Razmi, 2005), China (Jeon, 2009), and Turkey (Halicioglu, 2012). A rela