Possible Effects of European Union Widening on Latin America

Abstract

Pending widening of the European Union to the East has revived concerns in Latin America that Europe may become more inward-looking. However, booming trade and foreign direct investment relations between current EU members and Central and Eastern European countries are unlikely to harm Latin America. Trade patterns suggest that Latin America's exports to the EU are complementary to the exports of Central and Eastern European countries. Moreover, the recent surge in flows of foreign direct investment to various host countries, including several Latin American economies, indicates that new investment opportunities in Central and Eastern Europe induce additional foreign direct investment, rather than causing its diversion. This picture is unlikely to change significantly once some Central European countries become members of the EU. The article concludes that future economic relations between Latin America and the EU depend primarily on sustained economic policy reforms in Latin America and the EU's role in multilateral trade negotiations, rather than on the EU's widening to the East.