Trade linkages and growth in Latin America: An SVAR analysis

How do shocks originated in large economies around the globe have transmitted to the growth rates of Latin American countries? To answer this question, we propose a highly parsimonious structural VAR model, identified through bilateral trade linkages. Since trade weights evolve through time, the effects of shocks are time-varying and we are able to quantify how growth in the region has been affected by tighter trading linkages with fast-growing emerging economies, and how it has responded to a new world trade structure, featuring China as a major player. It is found that about half of the vigourous growth registered in Latin American countries by the end of the 2000s can be attributed to direct and especially indirect multiplier effects induced by the spectacular growth of the Chinese economy.