Trade openness in countries around the world has shown significant relevance in addressing one of the greatest global crises, where the acute and real problem of global food security, coupled with rising inflation, demonstrates that trade policies not only ensure adequate access to food but also compel a consideration of the link with economic complexity, which in turn requires research and development and the creation of an innovation climate that impacts economic growth ( Bardi & Hfaiedh, 2021; Fusco et al., 2020; Gallego & Zofío, 2018; Tabash et al., 2022). Moreover, sustainable trade practices are crucial for promoting long-term economic resilience, environmental protection, and social well-being, aligning with the broader goals of sustainable development.

The debate focuses on the so-called resource curse, where Latin American economies show that after the decades of the eighties and nineties, they developed a strategy for diversifying exports and boosting the reorientation of the external sector where goods of medium and high technological intensity are produced; while other countries such as Peru, Ecuador, Bolivia, Chile, Colombia, Paraguay, and Venezuela based their trade basket on the primary sector as the support of the export industry ( Alvarado & Guzmán, 2019; Gnangnon, 2022; Tabash et al., 2022).

The growing international trade flow, the development of technological capabilities, research and development, and economic complexity have had a direct and significant impact on sustainable economic growth. From the theoretical perspective of economic policy for sustainable growth, trade policy plays a fundamental role in the state, as market economies require the existence of an efficient and effective state that can ensure compliance with free trade rules ( Cetin et al., 2018; Chávez, 2021; Lima & Alvarez, 2018).

In the region of South America, according to data from the Economic Commission for Latin America (2021) in Argentina, the average growth of trade openness, which allows assessing the magnitude of foreign trade relative to a country’s internal production, was 28% in the period 1990-2022, being volatile and reaching the highest percentages of openness degree in the period 2002-2008 then showing a decline and reaching 31.7% in 2022.

In the case of Bolivia, the average trade openness indicator reached 60.1% in the period 1990-2022, and from 1990 to 2008 showed an increasing trend, reaching 67.8% in 2022. For Brazil, the average growth of trade openness was 24.3% in the period 1990-2022, with an increasing trend until reaching 38.8% in 2022.

Meanwhile, in Chile, during the period 1990-2022, an average of 62.4% was reached, achieving 75% in 2022; in the case of Colombia, the average reached during the mentioned period is 35.3% and in 2022 reached 48.4%. In the case of Ecuador, the average trade openness indicator reaches 50.9% and in 2022 reached 57.7%; for Paraguay, it reached a degree of openness of 82.8% in the period 1990-2022; while Peru reached 42.4% in the same period; and Uruguay reached 52.7%.

The arguments in favor of trade liberalization start from the greater accumulation of physical capital but face diminishing returns; while the growth lever bets on the accumulation of knowledge, which generates significant and dynamic impacts that lead companies needing access to large markets to innovate and become more competitive given the fluidity towards the ability to learn and assimilate new technologies ( Corrales Sillo, 2021; Mesquita & Stein, 2019).

While trade openness has empirically shown positive externalities for economies, such empirical evidence still lacks clear empirical factors, especially in Latin American economies where the impact is estimated to be an acceleration of between 0.6 and 0.7 percentage points on average to the annual growth of per capita gross domestic product. This is mainly due to the role of political, institutional, and structural factors related to technology and innovation; given the particularities of the countries that make up the South American region, the low levels of human capital and the distant technological frontier may have affected trade openness, diminishing the positive impact of trade liberalization as addressed by economic theory ( Grossman & Helpman, 2015; Goldberg & Pavcnik, 2016).

However, there is no doubt that trade openness has led to leaving behind apocalyptic decades in Latin America; it was the shift in trade policy that originated a positive contribution to development and well-being ( Herreros and Rosales, 2013; Lopez & Munoz, 2020); as Boloña (1993) held, “precisely because we are a small country in economic terms, we must diversify our markets, expand the scale of our economy, benefit from international markets to grow and accumulate capital, to overcome poverty and achieve the desired levels of well-being and prosperity“(p.13).

Falcón (2021) begins from the challenge of directing trade policy towards a greater degree of diversification of productive matrices that allows countries to achieve greater economic complexity based on a greater accumulation of knowledge and not just on the aspect of more physical capital or working capital, leading to bet on technological development and the transformation of the basket of exportable products leading to manufactured goods with added value, surpassing the threshold of commodities and developing comparative advantages, with a relationship between trade openness, economic complexity, innovation, research and development, and economic growth ( Lee & Lee, 2020; Shahzad et al., 2022); understanding the particularity of each country in its productive transformation based on the existing connection between the variables under study, which will lead to a public policy decision to achieve the transformation of the external sector for sustainable growth with development prospects in emerging economies ( Yang et al., 2023; Cheong, 2023).

In this context, the present article aims to analyze the macroeconomic determinants of trade openness in Latin American countries; thus, posing the question: What are the macroeconomic determinants of trade openness in Latin American countries: a panel data analysis? considering the explanatory variables of economic complexity, innovation, research and development, and economic growth for the mentioned period.

The contribution, considering the specificity of the model that proves to be crucial for policymakers, takes into account that the study is only conducted in South American countries over a specific period from 2000 to 2020 and contributes to the empirical evidence of considering the importance of better integrating into the global economy by achieving greater competitiveness and considering trade openness from an important position in income distribution and poverty reduction that benefits generating investment and dynamism in international trade in the region.

Recent empirical evidence has been highlighting the importance of the external sector through trade openness as an economic policy in the growth of emerging economies like those in Latin America, in a current scenario of health crisis and food security, as well as economic uncertainty that has underscored the importance of diversification and complexity of exports, leading to a restructuring of the productive matrix which in turn requires the accumulation of physical capital and the expansion of capabilities. This necessitates developing a climate of business innovation as well as allocating more resources to research and development ( Carrasco, 2021; Chávez, 2021; Bashir et al., 2020; Chacha et al., 2024; Guo et al., 2023; Mania & Rieber, 2019; Nieminen, 2020).

In the international environment, Wang et al. (2023) conducted a study evaluating economic complexity, trade diversification, renewable energy consumption, and environment-related taxes to generate growth during the period 1995-2018. It was identified that the aforementioned variables significantly propelled the growth of BRICTS countries, generating important policy implications for achieving marginal contributions.

For Li and Rigby (2023) economic growth has a positive and significant relationship with complex technological diversification. Evidence of spatial autocorrelation and endogeneity confirms the positive link between technological advancement and economic growth in China between the periods 1991-1995 and 2011-2015, where measuring knowledge complexity has generated a positive relationship, the result of the regression showing that intelligent specialization has led to a knowledge development trajectory for achieving regional competitive advantage.

The nexus between innovation, trade openness, financial development, and economic growth using the panel VAR approach in 11 European countries over the period 2001-2016 reveals a unidirectional relationship between economic growth and financial development; as well as trade with economic growth and the negative relationship between innovation and economic growth and between trade and economic growth. Thus, the important role of each country depends on the role that innovation and productivity play, recommending that the quality of institutions is fundamental to improving the regulatory environment to achieve optimal trade openness and generating incentives for innovation in local companies to address the negative effects generated by trade openness ( Mtar & Belazreg, 2023).

Various studies show the relationship between the explanatory variables of economic complexity, innovation, research and development, and economic growth.

In 28 African countries, considering a panel data analysis, the mediating effect of economic complexity and the natural resource-based growth model for the period 1995-2019 has been considered. The empirical evidence indicates that the positive effect of natural resources on economic growth in the short and long term, generating robust results, where economic complexity seeks to formulate policies to achieve links between the variables of natural resources and economic growth using economic complexity ( Mesagan & Vo, 2023).

In Russia, high-tech companies that generate new products and markets are a key factor in long-term economic development, where the region’s export basket reflects operations in the directions of technological development to diversify a technological chain with higher added value and hence competitiveness of export-oriented products, creating knowledge-intensive and high-technology sectors aimed at developing local advantages and market expansion with interregional cooperation ( Goryushkin & Khalimova, 2023).

Thus, the diversification of exports and economic complexity is receiving relevance in the scientific literature so that the results of structural equation models generate a positive relationship between economic complexity and per capita economic growth of each country. The results show that both the level of per capita gross domestic product and economic vulnerability infer on economic complexity, given the economic challenges faced by countries with low growth, high unemployment, rising debt, and regional vulnerability ( Ben Saad et al., 2023).

For Rahman et al. (2023) in Bangladesh, economic growth is argued in terms of technological innovation, foreign direct investment, trade, and human capital over the period 1990-2020, using time series for the dynamic simulation ARDL method, where cointegration and the symmetrical long- and short-term associations between the variables, consider that technological innovation and human capital have a long-term relationship with economic development in the country. Generating the contribution of a significant correlation between economic growth and the described variables in the short term, considering the robustness of the study.

For Bardi and Hfaiedh (2021) evidence shows a positive impact of trade openness on economic growth, revealing unidirectional causality based on economic theory where trade openness has positive effects on economic growth ( Barro & Sala, 2009; Lucas, 1988; Romer, 1986; Banday et al., 2021; Zaman et al., 2021).

Canh and Thanh (2022) for their part, evidence that the diversification of exports and economic complexity show a positive dynamic, presenting bidirectional causality given the role played by the quality of export products which is measured from the productive capacities of a country to add value to its export products achieving more competitiveness through the structural transformation of economies and the diversification of the productive matrix of countries ( Armas et al., 2020; Shahzad et al., 2022; Lapatinas et al., 2019; Koch, 2021).

For Mesquita and Stein (2019) they consider that although the great trade liberalization in Latin America has led to a positive impact on economic growth and well-being being the channel that helped recover much of the economies of Latin America from their participation in trade in the gross domestic product in the region that reached 28% they still face challenges in terms of technological aspect and innovation to continue the solid growth of international trade; this because there are comparative advantages that allow productivity leaps ( Llanos & Brown, 2021; Vela et al., 2021).

For Chávez (2021) considers in the panel data model two related equations innovation as the dependent variable and trade openness as the independent variable and as a second equation was obtained as the dependent variable to the predictions of innovation and trade openness as the explanatory variable.

Meanwhile, Fusco et al. (2020) considers in their analysis of dynamic panel data where they analyze food security and trade openness developing three regression equations with indicators of trade openness, tariffs, and globalization. While Cetin et al. (2018) considers economic growth, energy consumption, trade openness, and financial development as explanatory variables and carbon emissions as the dependent variable for the case of Turkey.

The research utilizes data sourced from the World Bank, Harvard University, and the Economic Commission for Latin America and the Caribbean. Descriptive statistics for each variable analyzed are presented in Table 2, including the mean, standard deviation, minimum, maximum, skewness, and kurtosis. Additionally, the correlation matrix between the variables under analysis is provided. It shows that exports, imports, gross domestic product (GDP), the economic complexity index, total interregional trade of goods, and research and development had a negative relationship with trade openness, whereas the export of high-technology products and the logistics performance index had a positive correlation with trade openness during the period 2000-2020. The negative relationship indicates that South American countries, except for Chile and Brazil, have shown less trade openness in their economies over the last decade with respect to the international market. According to the Economic Commission for Latin America and the Caribbean (2021) economies in South America have demonstrated reduced trade openness due to the slowdown in international trade despite their high dependence on imports and extensive trade relations with major global economic powers in a scenario of economic uncertainty and a political shift to the left, which helps to understand which variables are influencing reduced trade openness ( Figure 2).

The standard deviation indicates that there is greater variability among the variables of export of high-technology products, exports, imports, gross domestic product, and total interregional trade of goods, with a total of N data points equivalent to 231 observed data per variable representing the total number of 2079 observations across the 9 variables studied during the period 2000-2020 for the 11 South American countries. This variability and the detailed analysis of the correlations provide insights into the complexities of trade dynamics and economic interactions in the region, underscoring the nuanced impact of various economic factors on trade openness.

The estimated regression results, considering the Wooldridge (2010) test, indicate the presence of autocorrelation across the panels. Additionally, the Breusch and Pagan (1979) (as cited in Onali et al., 2017) Lagrange Multiplier test shows that the estimations had issues with heteroscedasticity; these issues have been corrected using Generalized Least Squares (GLS) to address both heteroscedasticity and autocorrelation.

Table 3 displays the results of the panel data estimation, revealing that public health spending, rural population, unemployment, and gross domestic product are statistically significant at the 5% level considering equation 2.

To determine the best model (fixed or random effects), the Hausman Test is used, which compares the beta coefficients obtained through the fixed and random effects estimators, identifying whether the differences between them are significant. In both cases, the weight matrix is homoscedastic. Thus, considering that the Prob > Chi ² is less than 5%, the fixed effects model is employed, which shows a higher global significance of 94.5%.

The interpretation of the fixed effects details that for every 1% increase in the exports of high-technology products, trade openness increased by 0.05%. Similarly, a 1% increase in exports raises trade openness by 0.30%; a 1% increase in imports leads to a 0.09% increase in trade openness; a 1% increase in total interregional trade of goods increases trade openness by 0.005%; and a 1% increase in spending on research and development results in a 0.14% increase in trade openness. Regarding gross domestic product, a 1% increase led to a 0.42% decrease in trade openness. For the economic complexity index, a 1% increase resulted in a 0.08% decrease in trade openness, and for the logistics performance index, a 1% increase led to a 0.13% decrease in trade openness during the analysis period 2000-2020.

These findings provide valuable insights into the factors that influence trade openness in South American countries, highlighting the complex interplay between various economic and logistical variables. The results underscore the importance of considering both economic structures and policy environments when assessing the openness of trade regimes.

The impact of economic complexity, innovation, research and development, and economic growth on the trade openness of South American countries in the period 2000-2020 shows a differential behavior. These countries have exhibited lower trade openness in their economies over the last decade compared to the international market. Additionally, there is a reduced economic complexity due to lower diversification of productive matrices in export baskets, resulting in economies still heavily reliant on commodities or primary export products.

The greatest decline in trade openness is observed in Venezuela, with a negative impact of 104%. This is attributed to the country’s current economic crisis characterized by inflation and high prices of its oil commodity, coupled with a closed economy model. Among the remaining market economy countries, negative impacts are noted in Peru (15%), Ecuador (16%), Argentina (16%), Uruguay (10%), Bolivia had the greatest decline in Trade Openness at 18%, Ecuador and Argentina had 16%, Colombia had 13%, and Paraguay had 10%; these declines were due to diminishing returns and the accumulation of physical capital. Conversely, Chile, French Guiana, and Brazil have experienced positive impacts of 12%, 31%, and 25%, respectively. These economies are characterized by better performance in the economic complexity index, higher percentage of budget allocated to research and development expenses, and trade policies focused on industrializing value-added products such as high-tech products ( Figure 3).

These results align with the findings of the Economic Commission for Latin America and the Caribbean ( ECLAC, 2021), which has shown that economies in South America have exhibited lower trade openness due to the slowdown in international trade. Countries such as Peru, Ecuador, Bolivia, Chile, Colombia, Paraguay, and Venezuela have relied on their primary sector as the backbone of their export industry.

Furthermore, these results are consistent with the findings of Mesquita Moreira and Stein (2019), who found that while significant trade liberalization in Latin America has led to a positive impact on economic growth, challenges remain in terms of technological aspects and innovation to sustain solid international trade growth. There are still comparative advantages that allow for productivity leaps, yet South American countries have not yet taken off in terms of innovation and thus achieving higher productivity.

Corrales Sillo (2021) and Mesquita Moreira and Stein (2019) also suggest that the aforementioned results indicate that South American economies still lack knowledge accumulation, which translates into a lack of innovation. To address this, policies focusing on innovation and development are needed to add more value to export products and access larger markets, thereby enhancing competitiveness. These economies are characterized by diminishing returns due to the accumulation of physical capital.

In the analysis period of 2000-2020, South American countries exhibited differential behavior as they showed lower trade openness in their economies compared to the international market. Additionally, there was lower economic complexity due to less diversification in export baskets, resulting in economies still based on commodities or primary export products.

Based on panel data analysis using fixed effects, a total of 8 countries—Peru, Ecuador, Argentina, Uruguay, Bolivia, Colombia, Paraguay, and Venezuela—experienced a negative impact on trade openness. Only the economies of Chile, French Guiana, and Brazil showed a positive impact on trade openness, characterized by better performance in economic complexity indices. These countries allocate a higher percentage of their budget to research and development and pursue trade policies aimed at industrializing products with added value.

Interpretation of fixed effects reveals that the variables with the greatest impact on trade openness during 2000-2020 were gross domestic product, logistics performance index, economic complexity index, exports, imports, and research and development expenditure.

While significant trade liberalization in Latin America has led to a positive impact on economic growth, challenges remain in terms of technological aspects and innovation to sustain solid international trade growth. South American countries still struggle to innovate and achieve higher productivity, facing a slowdown in international trade despite high dependence on imports and extensive trade relations with major global economic powers amidst economic uncertainty and a shift towards left-wing political systems.

For South American countries, it is recommended to strengthen policies that promote investment in research and development to drive innovation, as well as enhance education in science, technology, engineering, and mathematics to foster creative industries that add value to primary export products.

Developing strategic investment planning for infrastructure such as roads, ports, airports, and information technologies is essential to improve connectivity and facilitate the transportation of goods and services, thereby boosting energy efficiency and reducing logistical production costs.

Identifying the positive effect of trade liberalization on economic growth in Latin American countries, albeit unsustainable, calls for the development of clusters as a key strategy to foster competitiveness and specialization in specific sectors of the economy. This could be accompanied by fiscal and financial incentive programs to encourage investment in research and development, as well as the establishment of industrial parks, shared laboratories, and innovation centers to optimize connectivity and logistics.