Intra-Regional vs Extra-Regional Trade Liberalization in Central America

Abstract

Although the State Members of the Central American Integration System (henceforth SICA2) trade very extensively with the USA, the current growth of their intra-regional exports is remarkable and prone to create more internal added value for the region. We use and compare a standard, perfectly competitive and an imperfectly competitive GTAP3 CGE model based on the GTAP 9 database, to assess the impact of different scenarios. Our simulations evaluate the elimination of the existing taxes and subsidies in 2011, both at intra-regional level and with USA. The results emphasize the preference by most of the SICA countries for the completion of the customs union, as opposed to the deepening of the current DR-CAFTA4 agreements.