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Scenarios for trade integration in the Americas

  • Diao, Xinshen
  • Diaz-Bonilla, Eugenio
  • Robinson, Sherman

This paper analyzes two potential trade liberalization scenarios – a Free Trade Area of the Americas (FTAA) and possible links between MERCOSUR and the European Union (EU) – in a world computable general equilibrium (CGE) model. The model also incorporates some macro elements such as a cash- in-advance mechanism and rigidities in wages and exchange rates. The empirical results show that the two alternative regional integration scenarios are good for the participants while have little impact on the non-participants. Both scenarios are net trade creating, as trade creation greatly exceeds trade diversion, and the trade-diversion has relatively minor effects on the affected regions. The gains are larger for the Latin American participants than for their large potential partners – the U.S. and EU. These results are consistent with earlier studies of NAFTA, which also predicted small positive gains for the U.S. and large gains for Mexico. Many countries in Latin America are currently undergoing macroeconomic strains, and growth in the region has slowed. In this environment, external shocks and stabilization and structural adjustment programs are likely to lead to significant swings in trade balances and exchange rates. These issues will have to be considered in acknowledging that it is hard to reap the long-term benefits of trade liberalization in an environment of macroeconomic instability.

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Paper provided by International Food Policy Research Institute (IFPRI) in its series TMD discussion papers with number 90.

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Date of creation: 2002
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Handle: RePEc:fpr:tmddps:90
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  1. Lewis, Jeffrey D. & Robinson, Sherman & Zhi Wang, 1995. "Beyond the Uruguay Round : the implications of an Asian free trade area," Policy Research Working Paper Series 1467, The World Bank.
  2. Mary E. Burfisher & Sherman Robinson & Karen Thierfelder, 2001. "The Impact of NAFTA on the United States," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 125-144, Winter.
  3. Robinson, Sherman & Thierfelder, Karen, 1999. "Trade liberalization and regional integration: the search for large numbers," TMD discussion papers 34, International Food Policy Research Institute (IFPRI).
  4. Robinson, Sherman, 1991. "Macroeconomics, financial variables, and computable general equilibrium models," World Development, Elsevier, vol. 19(11), pages 1509-1525, November.
  5. Diaz-Bonilla, Eugenio & Thomas, Marcelle & Robinson, Sherman & Cattaneo, Andrea, 2000. "Food security and trade negotiations in the World Trade Organization," TMD discussion papers 59, International Food Policy Research Institute (IFPRI).
  6. Hinojosa-Ojeda, Raul A. & Robinson, Sherman & Lewis, Jeffrey D., 1995. "Regional integration options for Central America and the Caribbean after NAFTA," The North American Journal of Economics and Finance, Elsevier, vol. 6(2), pages 121-148.
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