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Economic integration in Latin America : where we stand

Economic integration in Latin America : where we stand. Roberto Bouzas Universidad de San Andrés-CONICET November 2009. Red de Investigaciones Económicas del Mercosur-REDMERCOSUR. Outline. A brief history The state of the game A changing external environment

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Economic integration in Latin America : where we stand

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  1. Economicintegration in LatinAmerica: wherewe stand Roberto Bouzas Universidad de San Andrés-CONICET November 2009 Red de Investigaciones Económicas del Mercosur-REDMERCOSUR

  2. Outline • A briefhistory • Thestate of thegame • A changingexternalenvironment • Endogenousconstraintstodeeperintegration • Argentina and Brazil: a closer look • Conclusions

  3. A brief history • The “Grand Design”: regional integration as developmentpolicy • Big ambitions, modestresults (LAFTA, AG, CACM, CARIFTA) • Reasons: a) cross-country heterogeneity; b) externaleconomicenvironment; c) tensionsbetween local interests and collectiveneeds (Villanueva & Fuentes, 1989) • Crisis and transition: • Pragmatism and defensive responses • Scalingdownambitions (LAIA, Protocolo Modificatorio AC, bilateralism) • Regional integration as structuralreform • Economicintegration and tradeliberalization (Mercosur, North-South FTAs)

  4. The state of the game • Since 1965 thevastmajority (83%) of bilateral traderelations shows highertradeintensityindeces • A large share of tariffitems and exports are tradedtariff-free, and anevenhigher share willbetradedtariff-free by 2015 • Modestprogress in NTMs and non-borderissues • New regionalism has ledto a spaghettibowl • FTAsversusCUs: no longer a policyrelevant debate

  5. Thestateof thegame I 83% of LAIA bilateral trade relations have increased their trade intensity indeces, 1965-2005 Source: Author´s calculations based on COMTRADE Iij = (Xij/Xi)/(Mj/Mw-Mi)

  6. Thestateof thegame II Share of tariff-free trade (% of tariff items and % of exports), 2010 Concessions received by Source: LAIA

  7. Thestateof thegame III Share of tariff-free trade (% of tariff items and % of exports), 2014 Concessions received by Source: LAIA

  8. The state of the game IV …butmodestprogress in NTMs and a spaghettibowl Canada United States TLCAN Mexico R. Dominicana Guatemala El Salvador Honduras Nicaragua CACM Costa Rica Panama Venezuela Colombia Ecuador • Plus: • UNASUR • ALBA • PACIFIC ARC • …and therest of theworld ACN Brazil Peru Bolivia Paraguay Uruguay Chile MERCOSUR Argentina

  9. The state of the game V • In the 1990s therewas a strategiccompetitionbetween “models” of tradediscrimination • ButtheFTAsversusCUsissueis no longer a policyrelevant debate • FTAshavebecomethedominantmode of discrimination • Customunionshavenotdeepened. Indeed, theyhavedisintegratedor are in theprocess of doing so

  10. A changingexternalenvironment • North-South PTAs (US-sponsored “competitiveliberalization”) • Ideologicalenvironment: end of “neo-liberal convergence” (both in emerging and developedeconomies) • Emergence of China and thePacific: a new natural resource boom

  11. Endogenousconstraintstodeeperintegration • Constraintsonthedemandside: rising (trade) interdependence, butstilllow and asymmetric • Constraintsonthesupplyside (I): divergentinterests and unsustainabletrade-offs (heterogeneity) • Constraintsonthesupplyside (II): leadership gap (whosupplies regional publicgoods?)

  12. Argentina and Brazil: a closer look I Constraintsonthedemandside Rising (trade) interdependence, butstilllow and asymmetric: Source: Author´scalculationsbasedon BADACEL A new fact: raising FDI by Brazilian firms

  13. Argentina and Brazil: a closer look II Constraintsonthesupplyside I (heterogeneity) • Asymmetries have grown bigger (political economy) • Brazil´s more assertive offensive interests contrast with Argentina´s predominantly “defensive” agenda • “Paciencia estratégica” versus “compensation for the past” • Strategic focus versus old-style reindustrialization

  14. Argentina and Brazil: a closer look III Constraintsonthesupplyside II (leadership gap) • Brazil: “a leader without followers”? • Brazil: Dragging or pulling? • The private sector become the driver in agenda setting?

  15. Conclusions • Market integration healthier than institutions • Institutions increasingly politicized (an umbrella for heterogeneous interests) • The private sector will bend the agenda towards non-border issues, but tougher to deal with and more conflictive • The key to start to disentangle the spaghetti bowl is a few blocks away

  16. Thankyou!

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