PPP in Latin America : A Cointegration Test of the Casselian Hypothesis

This study examines the Casselian hypothesis that the removal of government restrictions on international trade tends to lead to purchasing power parity even if other barriers to trade continue to exist. Twenty pairs of countries within the Mercosur and the Andean trade agreements are tested for PPP using Johansen's cointegration technique. The results are compared both with the same pairs of countries before trade liberalization and with twenty-five pairs of countries outside the Mercosur and the Andean agreements. The results are consistent with the Casselian hypothesis