Terms of trade and total factor productivity: empirical evidence from Latin American emerging markets

This paper uses quarterly data from Chile, Mexico and Peru to study the link between terms of trade and total factor productivity (TFP). A framework with two steps is used. First, we estimate TFP using a stylized general equilibrium model for a small open economy model. Then, the TFP is decomposed into a domestic component and an external component linked to terms of trade using a structural VAR model that uses long-run restrictions as in Blanchard y Quah (1989). Our main results show that the terms of trade have not only short- but also medium- and long-term effects on TFP. The short- and medium-term impacts are predominant in our sample. (Audio: Department of Economic Publications)