Economic integration in Latin America


Discussion Paper 2010-07
JEL Classification: E2, E3, E6


This study investigates the feasibility of economic integration in Latin America by considering the seven largest economies in the region i.e. Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. We hypothesize that if the seven largest economies in the region are integrated then the smaller economies will follow the suit. Towards this goal we analyze the long-term and short-term relationship among key macro variables—real GDP, intra-regional trade, private investment and consumption in these seven countries. We observe that all variables in these countries are driven by more than one common trends and these variables also share common cycles. The common trend-common cycle decomposition of real GDP, private investment and consumption reveal that the economic fluctuations in these countries follow a similar pattern in terms of duration, intensity and timing both in the long and the short run. Since these countries demonstrate a high degree of co-movement among key macro variables these seven largest countries in Latin America can lead the path of integration process in the region and reap the benefits of economic integration.

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