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Economic impact for Central America, Panama and the Dominican Republic (CAPDR) of changes in US trade policy, increased regional integration and new trade agreements

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  • Rojas-Romagosa, Hugo
  • Guevara, Porfirio

Abstract

We quantify the economic impact for the CAPDR region (Central America, Panama and Dominican Republic) of potential scenarios that include drastic changes to current US trade policies. We also quantify the economic potential of alternative trade policy measures by the CAPDR region, such as deeper regional integration and the negotiation of new preferential trade agreements (PTAs) with other regions. We employ a dynamic CGE model variation of the standard CGE GTAP model, which includes imperfect competition and "online" capital accumulation based on Francois et al. (2005). An important innovation of our CGE model is that we also calibrate international capital flows to reflect the estimated impact of the depth of PTAs on bilateral FDI inflows, which is taken from a separate study (Kox and Rojas-Romagosa, 2017). Our main results are that, as expected, the revocation of the US-CAPDR PTAs will have a large and significant negative economic impact on the CAPDR region, with substantial GDP and potential job losses. These losses will be larger if the region also retaliates by rising trade costs with the US. The best trade policy alternative for CAPDR will be to deepen regional integration, in particular within the CAPDR region and with the Pacific Alliance countries (Mexico, Chile, Colombia and Peru). On the other hand, signing PTAs with the Mercosur block and East and Southeast countries, will bring positive effects, but of a smaller magnitude than pursuing deeper regional integration.

Suggested Citation

  • Rojas-Romagosa, Hugo & Guevara, Porfirio, 2017. "Economic impact for Central America, Panama and the Dominican Republic (CAPDR) of changes in US trade policy, increased regional integration and new trade agreements," Conference papers 332917, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332917
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