SHORT-RUN TRADE EFFECTS OF THE LAFTA

Abstract

SUMMARY This article uses ordinary least squares to estimate the trade effects of the Latin American Free Trade Association (LAFTA). Estimates are made for total LAFTA and for each member country. The basic models use income, foreign exchange and a proxy for economic integration. The findings indicate that economic integration promoted an expansion of intra-LAFTA trade for all member countries. And most of the increased intra-LAFTA trade was diverted from third countries. The findings also confirm the importance of the foreign exchange constraint for the trade of developing countries. An analysis of the reciprocity of concessions indicates that the effective concessions which Argentina received were less than those it granted to other LAFTA members. More pronounced were the similar findings for Chile and Colombia. In contrast, the ‘favored’, less developed LAFTA members (Ecuador, Paraguay, and Uruguay) received concessions worth many times the value of the concessions which they granted.