Trade and investment in Latin America and Asia : Potential perspectives from further integration

Recently, Asian and Latin American countries have been involved in a series of negotiations to liberalize trade and investment flows. This paper analyzes the potential impact of a Free Trade Agreement between countries of both regions, applying a world dynamic general equilibrium model (MIRAGE). An important feature of the model is that includes a new way of modeling bilateral investment flows and bilateral investment agreements. This is especially important given that investment plays a major role in the economic relations of the two regions. Our results show that most countries will benefit from the agreement; however, Latin American countries’ gains will be higher, especially when all Asian countries participate. Latin American countries will also gain from increased FDI inflows, mainly from developed Asian countries.