Intra- and extra-regional trade costs: A comparative approach to Latin-American performance

Abstract

The world expansion of trade in manufactured goods has been more dynamic than production over the last 25 years. The greater trade openness was due more to the growth of extra-regional trade than to intra-regional trade. Regions and trade agreements performed heterogeneously. Using a structural gravity model, we obtain that different mechanisms of trade liberalisation complemented each other, through the reduction of Most Favoured Nation (MFN) tariffs, the expansion and deepening of existing plurilateral agreements and the incorporation of new deeper agreements. The contribution derived from the reduction of MFN tariffs stands out, followed in importance by the component of preference for openness and trade facilitation. The contribution of the preferential channel via preferential trade agreements has been more important for extra-regional than intra-regional trade. For Latin America, heterogeneity is the fundamental characteristic, from the protectionism of Argentina and Brazil to a better openness performance of the countries of Central America and the Caribbean, and the members of the Andean Community (CAN) with an intermediate behaviour. Mexico, Colombia, Chile and Peru, economies from different regions, are the most open in Latin America. The concept of open regionalism is highlighted: without non-discriminatory trade openness, there is no regionalism that can significantly reduce trade costs.