Output co-movement between Latin America and the United States: the export structure matters

ABSTRACT

Using panel data analysis for the period 1961–2014, this paper finds that output fluctuations in Latin America were especially synchronized with the US business cycle before the commodity price boom in the 2000s. In most recent years, China has become a more important geo-economic source of output fluctuations for the region. Furthermore, focusing on export-structure related aspects as mechanisms, evidence suggests that non-primary commodity exporters in Latin America, whose exports have mainly been destined for the US market, display an intensified output fluctuation co-movement with the US. These findings contribute to the understanding of the Latin American macroeconomic exposure to external shocks.

KEYWORDS:

• Export structure
• business cycles
• Latin America

JEL CLASSIFICATION:

• F44
• O54

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Data from the World Development Indicators (WDI).

2. Growth rates for developing economies in other regions were positive: East Asia and Pacific (7.5 percent), Middle East and North Africa (3.4 percent) and sub-Saharan Africa (2.1 percent).

3. The simple correlation of the annual GDP growth rates of the US and other advanced economies is 0.69 for 1961–2014.

4. Since New Zealand’s GDP in constant 2005 US$ is not available from 1960 to 1976 in the World Development Indicators, they are excluded despite being an OECD member since 1973, and a high-income OECD economy according to the WDI.

5. An anonymous referee recommended this exercise based on the cyclical components. The suggestion was highly appreciated. It provides some additional evidence in regard to the insights in the formal econometric analysis in Section 3.

6. Calculations were based on United Nations COMTRADE data for the 15 largest Latin American economies.

7. For example, Corbo and Schmidt-Hebbel (2011) describe that during the 1990s and the 2000s, Latin America adopted a set of macroeconomic policies (exchange-rate floats and larger international reserves, among others) which reduced the vulnerability of the region, in comparison to previous financial shocks.

8. Levchenko, Lewis, and Tesar (2010) also observe that the collapse of international trade is a key aspect of the recent recession and show that this collapse is more serious than in previous US downturns.