Trade agreements and Latin American trade (creation and diversion) and welfare

Abstract

AbstractThis study analyses the process of economic integration in Latin America. Making use of a structural gravity model and including intra‐national trade flows, this paper provides an ex‐post assessment of the effect of the trade agreements (TAs) signed by Latin American countries on international trade. We account for the last wave of TAs proliferation and estimate treaty‐level effects. On average, TAs had a positive effect on Latin American trade. This holds true for both intra‐Latin American agreements and agreements between Latin American countries and the Rest‐of‐the‐World (RoW). However, we unveil that these average estimates cover a substantial degree of heterogeneity across TAs. Additionally, we quantify ex‐ante general equilibrium effects on the trade volumes and welfare of Latin American countries under different scenarios of deeper trade integration and disintegration.