Latin American Economic History: new questions, new data, old problems

Intraregional trade in South America, 1913-50. Economic linkages before institutional agreements

by José Peres Cajías, Marc Badia-Miró (mbadia@ub.edu) and Anna Carreras-Marín (annacarrerasmarin@ub.edu) (Universidad de Barcelona)

URL: http://econpapers.repec.org/paper/barbedcje/2012270.htm

Abstract

With the exception of the North American Free Trade Agreement (NAFTA), trade integration is still modest in Latin America, at around 20% of total trade. Surprisingly, these levels were higher in 1945, when the figure for imports stood at 25.6%. Paradoxically, this result shows that trade integration reached its peak before trade integration agreements were signed. To understand the reasons for this, we examine intraregional trade throughout the interwar period (1913-1950). We analyze five national cases: Argentina, Bolivia, Brazil, Chile and Peru. As far as we know, this is the first paper in the literature on intraregional trade during the interwar period. There are other papers on intraregional trade in Latin America, but they focus on the period after the 1960s. The analysis of intraregional trade in the interwar period is also useful to the Latin American industrialization debate. Given the disruption in world trade flows and the existence of some industrial capacity, the paper looks at any possible increase in intra-industry trade. There are two main conclusions: a) with the exception of the World War periods, intraregional trade has been low since 1913; b) in general, intraregional trade reflects the overall trade specialization: there is a high concentration of low value added products.

Review by Sebastián Fleitas

This paper was distributed by NEP-HIS on February 20, 2012 and deals with the fact that in spite of the many trade agreements that have been signed since the 1990s, actual international trade between Latin American Countries (LACs) remains quite low. The authors tell us that low trading volume is not at all new. This by looking at intraregional trade between 1913 and 1950, They construct a new database to describe the intensity and characteristics of trade for five LACs: Argentina, Bolivia, Brazil, Chile and Peru.

Two main conclusions arise from their analysis. The first one is that trade among Latin American countries was low during the first half of the 20th Century, but similar to the current levels. Interestingly, intraregional trade only increased during the WWI and WWII. The second conclusion by Peres Cajías and colleagues is that the flow of goods and services in intraregional trade reflect the same pattern as the flows with countries outside the region, namely there is a high concentration of low value added products.

These results are very important in the context of the early industrialization and the state-led industrialization process that was typical of LACs in the early 20th Century. Intraregional trade provides an opportunity to develop new goods, to attempt technological catch up under better conditions and to export to extra-regional markets. This process allows countries to make the structural change that is the basis for any process of economic development. In this sense, the failure to develop a dense network of intraregional trade could explain some of the difficulties to implement structural transformations and to find a more successful international trade pattern.

Upside-down Map, Joaquín Torres García (1943)

Even when this working paper describes in a very clear way the stylized facts, I think that there are two issues to improve that would contribute to a better understanding of the problem addressed. The first issue is that, in order to see what are the characteristics of the intraregional trade, the authors could compare the data with that of the trade with extra regional countries. A deeper and more formal comparison between these flows for each country can allow us to answer very important questions, for example if these flows were attempts to develop new goods that were frustrated when the developed countries came back to the international markets or if they simply were desperate attempts to increase exports when the international markets were closed. These two scenarios lead to totally different inferences about the role and the performance of the intraregional trade.

The second issue is that, even when the paper describes the findings in a very clear way, it is really important to go one step forward and try to see what factors are determining the intraregional trade flows. During the 20th Century LACs suffered many strong international shocks, followed very different policies and tried to implement a variety of institutional agreements of trade. In this context it is important to have a theoretical framework that provides clear interpretations over periods and countries. Such a theoretical framework would answer why and when we should expect higher levels of intraregional trade. Also, what is the role of some specific factors in the intraregional trade: endowments, (low) levels of productivity, the excessive volatility in macroeconomics variables or the balance of payments constrained growth (Bértola and Ocampo, 2010); what these low amounts of intraregional trade tell us about these factors or about the whole variety of trade agreements that the countries tried to implement over the 20th Century.

Finally, it is important to remark that one very important contribution to this working paper is to construct a new database based on LACs’ sources. As the authors state, the construction of databases of international trade has frequently relied on the use of official sources from developed countries (especially the United States, the United Kingdom and Germany, for example for reliability issues Federico and Tena, 1991). However, some key problems of the development of LACs can only be addressed using Latin American data and a methodology that assures their reliability, even when the sources have different problems as in many


The Economies of Latin America:
New Cliometric Data
César Yáñez and Albert Carreras (Editors)

periphery countries. The task of understanding the process of development in Latin America by the use of new databases is a joint effort of scholars from LAC, Europe and other regions. A privileged example of that is the collective work “The Economies of Latin America: New Cliometric Data”, edited by Carreras and Yañez, which has been released in these days and in which the authors of this paper participate. The volume contains twelve very interesting chapters showing new evidence and their interpretation about key issues from LACs’ Economic History. This new contribution, together with the Montevideo-Oxford Latin American Economic History Database (MOXLAD) among others, makes new data available to better understand old problems but to try to come up with new and better answers.

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2 thoughts on “Latin American Economic History: new questions, new data, old problems

  1. David G.

    Booming economies of Latin America are a signal of increasing opportunities for international investors and entrepreneurs in the region. From Chile to Brazil to Mexico, investing in Latin America has become a strategic priority for many global players as they seek new and exciting markets. The increased number of links and regional free trade agreements within the countries of the continent as well as with other countries around the world (Asia) is still below its full potential. However, making a successful investment depends on a variety of factors that come into play, from trust to communication issues to legal compliance. There is still substantial risk involved in doing business in Latin America and it has to be managed carefully to ensure success.

    http://www.risk-boutique.com/Investing-in-Latin-America

    Reply
  2. Marc Badia-Miró

    We are very pleased with the accurate comments of Sebastian Fleitas about our work. We agree with most of the suggestions done. We are working to improve our work, especially with the analysis of the main drivers of intraregional trade. We will present this work in WEHC, next July.

    Reply

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