Getting the Most Out of Free Trade Agreements in Central America

Getting the Most Out of Free Trade Agreements in Central America


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Central America has put the promotion of international trade at the center of its development agenda. Over the past years the region has witnessed the successful conclusion of negotiations for a significant number of free trade agreement, most notably the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) with the US and the Association Agreement (AA) with the European Union signed in May 2010. The priority given to international trade by Central America is unsurprising. Trade is generally perceived as being both beneficial for growth and a means for advancement for developing countries. There are now plenty of positive experiences with developing countries that have anchored their development strategies around the promotion of trade. The region should be congratulated without reservations for the effort made on this front. However, the real work starts now, with the recognition that trade agreements create opportunities but do not guarantee results. Three main questions are addressed in the background papers prepared for this study. How does trade liberalization enhance the volume of trade? What is the impact of higher trade flows on growth? Is the growth associated with trade equitable and sustainable? The main conclusions of the study therefore aim to inform the ongoing policy discussion on how Central America can get the most out of its free trade agreements: a key message that emerges is that this will depend on the ability of countries to create an enabling policy and institutional environment; one that will stimulate trade flows as well as the growth impact of these flows, while ensuring that growth is inclusive and sustainable.



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Publié le 21 juin 2011
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EAN13 9780821387139
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Getting the Most Out of
Free Trade Agreements in
Central America
J. Humberto López and Rashmi Shankar, EditorsGetting the Most Out of Free Trade
Agreements in Central AmericaGetting the Most Out of
Free Trade Agreements in
Central America
J. Humberto López and Rashmi Shankar, Editors© 2011 The International Bank for Reconstruction and Development / The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
All rights reserved
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This volume is a product of the staff of the International Bank for Reconstruction and
Development / The World Bank. The findings, interpretations, and conclusions expressed in this
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governments they represent.
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ISBN: 978-0-8213-8712-2
eISBN: 978-0-8213-8713-9
DOI: 10.1596/978-0-8213-8712-2
Library of Congress Cataloging-in-Publication Data
Getting the most out of free trade agreements in Central America / J. Humberto López and
Rashmi Shankar, editors.
p. cm.
ISBN 978-0-8213-8712-2 — ISBN 978-0-8213-8713-9 (electronic)
1. Free trade—Central America. 2. Central America—Commercial policy. 3. Central America—
Foreign economic relations. I. Lopez, J. Humberto. II. Shankar, Rashmi. III. World Bank.
HF1782.G48 2011
Cover photos: Crane and cargo containers © Zhang Lianxun/;
Trucks on a highway parking place © Ginsanders/;
Kindergarten children learning to use computers © Monkey Business Images/
Cover design: Candace Roberts/Quantum Think.Contents
Preface xvii
Acknowledgments xxi
About the Contributors xxiii
Abbreviations xxviii
Chapter 1 Getting the Most out of Central America’s
Free Trade Agreements 1
J. Humberto López and Rashmi Shankar
What Is the Expected Impact on Trade Volumes
from Central America’s Efforts to Liberalize and
Promote Trade? 5
What Is the Expected Impact on Growth from an
Increase in Central America’s Trade? 8
What Is the Complementary Agenda for Promoting
Trade? 9
What Are the Expected Welfare Effects of Trade
Liberalization and Promotion in Central America? 18
Notes 24
References 24
vvi Contents
Chapter 2 The DR-CAFTA and the Extensive Margin:
A Firm-Level Analysis 27
Ana Cristina Molina, Maurizio Bussolo, and
Leonardo Iacovone
The Data 29
Export Trends 31
Firm-Level Patterns of Extensive Margin 34
Relationship between Tariff Reductions and
Exporters’ Behavior: Preliminary Evidence 36
Empirical Strategy and Results 41
Conclusions 49
Notes 51
References 54
Chapter 3 Exports, Wages, and Skills: Implications
for CAFTA 57
Irene Brambilla, Lucio Castro, and Guido Porto
Firms in International Trade 58
Exporting, Productivity, and Wages: Causality 73
Conclusions and Policy Implications 77
Notes 79
References 79
Chapter 4 Trade and Economic Growth: Evidence on
the Role of Complementarities for the
DR-CAFTA Countries 83
César Calderón and Virginia Poggio
Literature Review 85
The Data 88
Econometric Methodology 90
Empirical Assessment 91
Trade and Growth: The Role of
Complementarities 97
Economic Implications of Our Estimates:
Discussion for DR-CAFTA 110
Concluding Remarks 117
Notes 118
References 119Contents vii
Chapter 5 Power Integration in Central America: From
Hope to Mirage? 123
Juan Miguel Cayo
What Does Power Integration Mean? 125
The Political Economy of Integration 132
Power Integration in Central America: The
SIEPAC Project 134
The Central America Power Sector in a Nutshell 135
Obstacles to Integration of the Central American
Power Sector 140
Reality or Mirage? 144
Conclusions 146
Notes 147
References 149
Chapter 6 Supply Chain Analyses of Exports and Imports
of Agricultural Products: Case Studies of
Costa Rica, Honduras, and Nicaragua 151
Raquel Fernández, Santiago Flórez Gómez,
Francisco Estrázulas de Souza, and Henry Vega
Case Studies of Agricultural Trade 153
Methodology and Sources 154
Supply Chain Analysis: Intraregional and
Extraregional Trade 156
Main Logistics Challenges 157
Quantitative Results for the Fresh Tomatoes
Supply Chain 162
Quantitative Results: Wheat, Rice, and Corn
Supply Chains 168
Conclusions 176
Notes 177
References 179
Chapter 7 Logistics Challenges in Central America 181
José A. Barbero
The Relevance of Logistics as a Factor in Trade 181
The Impact of Logistics and Trade Facilitation
on Trade Costs 182viii Contents
International Logistics Indicators 186
Country Logistics Review 193
Assessing Logistics Performance in
Central America 199
Policy Priorities to Enhance Trade Logistics 208
Notes 211
References 212
Chapter 8 Access to Credit and Productivity in
Central America 215
Inessa Love, Teresa Molina Millán, and
Rashmi Shankar
Productivity and Access to Financial Services
in Central America 220
The Data 222
Estimating Productivity 227
Cross-Country Differences in the Relationship
between TFP and Financial Products 236
Conclusions 239
Note 240
References 241
Chapter 9 Are Food Markets in Central America Integrated
with International Markets? An Analysis of Food
Price Transmission in Honduras and Nicaragua 245
Mario A. De Franco and Diego Arias
Price Transmission of International to Domestic
Prices of Food Products 249
Understanding the Price Transmission Results 255
Main Conclusions and Policy Implications 270
Notes 271
References 272
Chapter 10 Intellectual Property Rights and Foreign Direct
Investment: Lessons for Central America 275
Walter G. Park
Trends in IPRs and FDI in the DR-CAFTA Region 277
Regional Integration and FDI 286