Economic Integration Effects on Trade Margins: Sectoral Evidence from Latin America

The present paper aims to determine the effects of different levels of economic integration on the intensive and the extensive margins of trade. Specifically, the analysis focuses on the case of Latin America. It is of great importance for development policies in the region since the extensive margin can be defined as those exports that provide new market entrants, while the intensive margin is due to continued growth in sales of old exporters to the same destinations. Therefore, obtained results have important policy implications related to diversification strategies. The long-term period considered will allow us to determine whether different effects on trade margins might arise in the following two sub-periods: 1962~1989 and from 1990 onwards, i.e. before and after the spread of regional integration agreements and the deepening of the liberalization process in the region. Finally, we focus on those specific sectors in which Latin American countries present a higher relative participation of trade. The obtained results show that the effect of economic integration is both time and period sensitive. The main positive effects are found to be reflected in the intensive margin for all different types of agreements. Moreover, we find that deeper economic integration agreements have the greatest effect on trade margins.The authors thank Maria Victoria Barone for her active and valuable research assistance. We also thank German Gonzalez and Pedro Degiovanni for their participation in database processing, and very gratefully acknowledge the support and collaboration of SECYT, Universidad Nacional de Córdoba, Universitat Jaume I and Generalitat Valenciana (SECYT 05/E349; P1•1B2013-06; PROMETEOII/2014/053). We would also like to thank Jesica De Angelis, Juan Carlos Hallak and Jordi Paniagua, an anonymous referee, the editor and the participants in the ETSG held in Birmingham in September 2013, the Annual Meeting of the Asociación Argentina de Economía Política held in Rosario in November 2013, and in the X Conference on Economics Integration (INTECO) held in Castellón de la Plana in November 2013, for their very helpful comments and suggestions