"Has the Balance of Payments (BP) Been a Real Drawback for The Economic Growth in Mexico "

Abstract

In this part of the research on the dynamics of the balance of payments (BP) and economic growth in Mexico several models, which were discussed in the first part, will be developed and estimated. The goal is to show empirical evidence on the impact of the external sector in economic growth. The econometric analysis of time series carried out in this work examines a long-term and a short-term relationship, the latter case shows the existence of imbalances that are corrected with partial adjustments. Moreover, shock persistency is analyzed through impulse-response functions, and the variance decomposition as well as the granger casuality test is examined. The results suggest that monetary measures are not the only option to correct imbalances in the BP. Specifically, the answer to the question posed in this research is that the dynamic of BP components negatively affected GDP in 1980-1995 and subsequently there was a positive effect of the trade balance on GDP, indicating that the conditions could be improved for the external sector becomes effectively a source of economic growth.