İMPACT OF FİNANCİAL CRİSES AND FREE TRADE AGREEMENTS ON ECONOMİC GROWTH İN LATİN AMERİCA AND CARİBBEAN COUNTRİES

Mehmet Ali DEMİR

Abstract


This study empirically examines the impact of financial crises (defined as banking, currency, and debt), currency crisis and free trade agreements on economic growth for Latin America and Caribbean countries by estimating a panel data estimator over the period 1980-2013. It further focus  on whether a variety of free trade agreements (FTAs) can help in mitigating the impacts of financial crisis, by absorbing shocks in FTA partner countries. Next, having classified preferential trade agreements in Latin America and Caribbean countries by the extent of integration that they promote I have designated preferential trade agreements as ‘strong’, ‘intermediate’ and ‘weak’ for sample countries.

The main results of the study can be summarized as follows. First, financial crises (defined as banking, debt and currency) have a significant negative impact on economic growth in Latin America and Caribbean countries. Also, Latin America and Caribbean countries’ economies has been negatively and significantly affected by currency crisis over the period 1980-2013. Third, FTA is a good thing for Latin America and Caribbean economies. Fourth, when I interact FTAs with financial crises and currency crisis separately, the interaction term between financial crises and FTA has a negative but insignificant effect on growth. On the other hand, the interaction between currency crisis and FTA has a negative and significant impact on economic growth in Latin America and Caribbean economies. Fifth, strong trade agreement has a positive and significant impact on growth.


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