Heterogeneous Effects of Trade Agreements in Central America: The Case of CAFTA-DR

Sebastian Franco Bedoya and Woori Lee

No 10951, Policy Research Working Paper Series from The World Bank

Abstract: This paper studies the effects of the Central America–Dominican Republic Free Trade Agreement on trade among member countries. It uses the structural gravity model to estimate both the aggregate and heterogeneous effects across countries and sectors. The findings show that the agreement increased intraregional trade among Central American countries by 27 percent. The impact on Central American exports to the United States was smaller but positive, while the effect on US exports to Central America was insignificant. The paper highlights the importance of controlling for member-specific globalization dynamics as well as using domestic trade flows to capture the effects of specific trade agreements. Studying dynamic effects, the paper shows that anticipation effects were important for the Central America–Dominican Republic Free Trade Agreement and trade creation effects strengthened over time.

Date: 2024-10-16
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