Advisor

McIntyre, Richard [faculty advisor, Department of Economics]

Date

5-2007

Keywords

dependency, trade, terms of trade, China, Latin America, primary products, University of Rhode Island, honors

Abstract

China’s economy is expanding rapidly, and the emerging powerhouse is searching for energy resources, raw materials, and markets to maintain its economic growth. China has shown an insatiable appetite for Latin American natural resources, commodities, and agricultural products, from oil to lumber to copper to soybeans. Trade values between the two regions increased greatly from $1.3 billion in 1980 to about $13 billion in 2000 to over $50 billion in 2005. Latin America has the raw materials that China needs to fuel its economic expansion and offers a large market for cheap Chinese manufactured goods. Many analysts claim that Sino-Latin American trade is a “match made in trade heaven,” contending that China’s demand for raw materials is primarily a positive demand shock. China’s imports of resources and raw materials have pushed up prices in the world market, benefiting the Latin American countries exporting these goods. Chile, Venezuela, and Peru registered record trade surpluses in 2004 and 2005 due to the surge in exports to China. Others have noted that with a population of 1.3 billion, China offers a huge market for Latin American exports. On the other hand, many of the issues addressed by the Latin American dependency theorists of the 1960’s and 1970’s are relevant to current Sino-Latin American trade patterns. Dependency theory is best understood as a framework that seeks to explain underdevelopment in Latin America in terms of external causes. According to dependency theorists, the world is divided into “core” and “periphery.” The core is composed of the advanced countries, and the periphery is made up of the underdeveloped poor countries. The periphery is confined to exporting primary products and natural resources to the core, while the core exports manufactured goods to the periphery. Dependency theorists argued that this reliance on primary product exports is not conducive to economic growth since the periphery will suffer from deteriorating terms of trade. In other words, the poorer countries would be able to import less and less for a given level of exports. In my research I adopt these trade-related aspects of dependency theory and focus less on the political and social aspects. In some ways Sino-Latin American trade resembles the dependent relationship that Latin America long had with Europe and North America. Latin America sells natural resources, and China buys them and sells back value-added goods such as textiles, shoes, toys, and electronics. The import of cheap Chinese products competes with and undercuts local Latin American industries. Latin America may be falling into the trap of being a Chinese colony or economic dependency. Similar arguments have been made about Chinese economic relations with Africa. In my paper, I analyze Sino-Latin American trade data and patterns and then evaluate the extent to which Sino-Latin American trade resembles a dependent relationship. If the trade patterns resemble a dependent relationship, Latin American countries may need to make changes similar to those called for by Latin American populists with regard to the United States. On the other hand, if trade is mutually beneficial then such policy changes make little sense. Preliminary results suggest that some countries in Latin America are being backed into a raw materials corner.