Economic Growth Creation Or Diversion? The Record of Trade Agreements In Latin America

Abstract

This paper examines the effects of Preferential Trade Agreements (PTAs) and
GATT/WTO membership on economic growth using a sample of seventeen Latin
American countries for the period 1950-2004. In general, the evidence indicates
that the proliferation of bilateral and multi country regional and extra regional trade
agreements has not resulted in faster economic growth. On the contrary, we find that
PTAs and WTO only have a weak positive effect on increasing trade openness; but
this relationship does not translate into faster economic growth when controlling for
capital, labor force and trade openness. These results are robust to both static and
dynamic model specifications, indicating that trade openness has a positive effect on
per capita output growth, but PTA and WTO membership do not. Integration via de
facto increases output growth while integration via de jure does not. Based on the
results, PTAs create a net diversion effect on economic growth.