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Effect of exports and domestic demand on economic growth in Latin america: An analysis using the bulmer-thomas approach with panel data

Abstract:

In Latin America, there is a broad debate about the role of exports in economic growth. However, the role played by domestic demand has been little studied. The growth model developed by Bulmer-Thomas offers a theoretical framework to study the relationship between the three variables empirically. In this context, the objective of this research is to examine the effect of exports and of internal demand on economic growth in the 28 Latin American countries. Using econometric panel data, we show that the effect of internal demand on economic growth is greater than that of exports. However, the results differ when we classify countries according to their level of per capita income. In high-income countries we find that exports play a more important role than internal demand in increasing output, while in upper-middle-income countries, the effect of internal demand predominates. Finally, the evidence for lower-middle-income countries is not conclusive. These results contribute to the debate about the orientation of production of the countries in the region toward international markets or internal consumption in order to accelerate development.