Is growth influenced by the terms of trade? Argentina, a case study.

Frankfurt y Arnolshain

Seminario; XIII Arnolshain Seminar; 2015

Goethe University Frankfurt

Do terms of trade (TOT) affect economic activity in Argentina? The hypothesis of no influence is tested to explore the presence of different relationships between TOT and GDP. We address the Argentina case using an 1810-2014 annual database including economic activity, TOT, and a few control variables. Eighteen econometric models are estimated for variables at different level, growth, and volatility dimensions. When volatility is included; admissible volatility indices meeting admissibility criteria are generated by detrending, decycling, and correcting for expectations formation in order to proxy ex ante TOT volatility, providing a family of estimations. We use SVAR econometric models which provide impulse-response functions and error variance decomposition and also bivariate reduced form VARs for testing for Granger and instant causality. We find weak empirical evidence of a positive relationship between TOT level and GDP level. No evidence is found of either a relationship between TOT volatility and GDP level, or between TOT volatility and GDP volatility. On the contrary, there is some evidence of a positive link between TOT growth volatility and GDP growth volatility. In general the relationships have the expected signs, but in certain cases they are not statistically significant.