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Intra-regional vs extra-regional liberalization trade in Central America

Author

Listed:
  • Pedro Caldentey

    (Universidad Loyola Andalucía)

  • Manuel Alejandro Cardenete

    (Universidad Loyola Andalucía)

  • Adolfo Cristóbal

    (Universidad Loyola Andalucía)

  • Olexandr Nekhay

    (Universidad Loyola Andalucía)

Abstract

The countries in the Central American region (henceforth CA: Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Panamá) have signed multiple trade agreements in the recent past. Sometimes the whole CA worked as a unified agent, for instance vis à vis the United States or the European Union. In other cases, some individual countries took the initiative to extend their list of freely tradeable goods and services. CA exports and imports very extensively with the United States (39% of the aggregate exports). However, the recent growth of the intra-regional trade has been especially remarkable. The experts emphasize that such trade generates more internal added value than the inter-regional one, which may allow for higher local welfare and a more favorable external balance for CA. Our simulations try to evaluate which alternative is locally preferable, taking into account that any intra-regional trade liberalization would stimulate sectors that compete for productive resources with the world exports. To that purpose, our first shock will be an elimination of existing tariffs at the intra-regional level while keeping the protection against imports from the rest of the world. In our second simulation, we will keep the current level of tariffs within CA, while reducing with the shock the barriers to the inter-regional trade with the United States. Taking this background into account, we use a perfectly competitive GTAP CGE model based on the GTAP 9 database, to assess the impact of the different scenarios, based on the current trade relationships. Our intention is then advising the CA authorities as to which range of trade negotiations should be prioritized today.

Suggested Citation

  • Pedro Caldentey & Manuel Alejandro Cardenete & Adolfo Cristóbal & Olexandr Nekhay, 2016. "Intra-regional vs extra-regional liberalization trade in Central America," Working Papers 2016-004, Universidad Loyola Andalucía, Department of Economics.
  • Handle: RePEc:loy:wpaper:2016-004
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    File URL: http://www.loyolaandnews.es/loyolaecon/wp-content/uploads/2016/10/WP_INTRA-REGIONAL-vs-EXTRA-REGIONAL-TRADE.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
    1. Cordero, Martha, 2014. "El comercio de bienes y servicios en Centroamérica, 2014," Sede Subregional de la CEPAL en México (Estudios e Investigaciones) 37201, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Zaclicever, Dayna & Durán Lima, José Elías & Terra, María Inés, 2011. "Efectos de las medidas de política comercial aplicadas en América Latina sobre el comercio regional y extrarregional," Comercio Internacional 109, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    3. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    4. Friederike Koehler-Geib & Susana M. Sanchez, 2015. "Costa Rica Five Years after CAFTA-DR," World Bank Publications, The World Bank, number 22013, December.
    5. Burniaux, Jean-March & Truong, Truong P., 2002. "Gtap-E: An Energy-Environmental Version Of The Gtap Model," Technical Papers 28705, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. J. Humberto Lopez & Rashmi Shankar, 2011. "Getting the Most Out of Free Trade Agreements in Central America," World Bank Publications, The World Bank, number 2322, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    GTAP; applied general equilibrium; trade liberalization; Central America;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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