Trade with China: composition of the trade basket and economic growth in Latin America

The entry of China as a member of the World Trade Organization (WTO) in November 2001 deepened the Latin American (LATAM)-China trade relationship, based on the exchange of Latin American commodities for manufactured goods from China. Thus, this paper analyzes the impact of the composition of the LATAM-China trade basket on the economic growth of Latin American countries. Based on a Cobb-Douglas production function, productivity is explained by exports to China, imports from China and other control variables. Non-exporting GDP to China is used as the dependent variable to remove the effect of exports on the national accounts and obtain the effect of exports via productivity. Linear regression techniques are applied with panel data on 23 Latin American countries for the period 2002 - 2017. Considering the structural differences between countries in the region, the exercises are applied in two separate panels, one corresponding to South American countries (SA) and the second to Mexico, Central American and Caribbean countries (MCC). Exports to China are disaggregated into three main groups: (1) primary products and commodity-based manufactures, (2) low-technology manufactures, and (3) medium- and high-technology manufactures. Imports from China are grouped into: (1) consumer goods, (2) intermediate goods and (3) capital goods. The results indicate that low-tech manufactured exports to China inhibit SA's economic growth. Also, commodity exports induce negative effects on the economic growth of MCC. On the other hand, it is obtained that imports from China of consumer and capital goods stimulate economic growth in SA while imports of intermediate goods exert this effect in MCC. It is concluded that trade with China favors economic growth in Latin America only through imports from China, since these are more diversified and have higher value added than Latin American exports to China.