Exports or Imports: which leads the way? A means of explaining trade growth between Australia and Latin America

GERMAN HECTOR GONZALEZ; ALEXIS ESPOSTO; VIEGO, VALENTINA

Medellín

Seminario; Seminario Grupo de Economía y Gestión; 2012

Universidad EAFIT

Bilateral trade is not a natural phenomenon. While individual agents are the ones who initiate and conduct the trade transactions, it is the states which define the conditions under which trade arrangements are conducted. Recent statistical studies indicate that bilateral trade flows show persistence and reciprocity. Clearly, those conditions tend to have long term consequences. Our paper has two main objectives. The first is to gather evidence that relates to the increase in bilateral trade as a result of trade reciprocity. The second objective is to understand why the trade volume has changed considerably between Australia and Latin America during the last decade. For many years the Latin American countries were almost undiscovered territory to Australian industry and consumers. In recent years, however, major Latin American economies have changed that perception and Australia shows growing deficits. We study the existence of reciprocity in terms of trade flows between Australia and 10 Latin American economies using the pair wise Granger causality test with 5 lags. This might be interpreted as a strategy of trade market penetration or a particular case of countertrade, where one economy imports in order to motivate openness of its partner and to trade its own products. This strategy seems to be practiced with similar intensity by both Australia and Latin America.