Reciprocity in bilateral trade flows: An empirical analysis for trade between Australia and Latin American countries

Abstract

Bilateral trade is not a spontaneous phenomenon. While individual agents are the ones who initiate and conduct trade transactions, it is nations that define the conditions under which trade occurs. Recent statistical studies relating to bilateral trade indicate that those conditions have long term consequences. We study the existence of reciprocity in terms of trade flows between Australia and Latin American economies using the pair wise Granger causality test. The results indicate that reciprocity can be considered as a market penetration strategy, or specific case of countertrade. This strategy is practised by both Australia and Latin America