Trade and Investment in Latin America
and Asia: Lessons from the Past and
Potential Perspectives from Further
Integration
Antoine Bouet ([email protected]) & David Laborde ([email protected])
Valdete Berisha-Krasniqi & Carmen Estrades
IFPRI
Lima, March 23rd 2010
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Growth performance of both regions
• Structural reforms, in particular on trade
• These regions are so different
• RTAs are multiplying all over the world
• South-South Cross Regional RTAs are unusual,
at least before 2004
• New RTAs cover trade… and investment
• Building blocks vs. stumbling blocks
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Structure of the presentation
• A. Institutional point of view
• B. Trade and Policy characteristics of both regions
• C. Modeling a FTA between both regions
• With traditional model
• With new model focusing on the interrelation
between trade and investment
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• A. Institutional point of view
• Both regions: from import substitution strategies to
trade (unilateral/regional/multilateral) liberalization
• Gradual approach in Asia… rapid liberalization in
Latin America
• Different exchange rate strategies
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Proliferation of RTAs worldwide
• … and especially in Asia and LA
• In Asia RTAs mostly driven by Japan and Singapore
• … China and India are also key players
• China and India have mostly signed with developing countries
• Cross regional RTAs, with Singapore in particular
• This gives birth to the “noodle” Bowl
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• 91 RTAs currently in effect involving at least LA
countries
• Majority are bilateral agreements.
• From 2000, cross regional agreements with
Chile as the key driver (EU, US, EFTA, Korea,
China, Australia…).
• This gives another “Spaghetti” (?) bowl
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Trade and investment relations between the two regions
• Relatively new phenomenon (Medalla and Balboa, 2009)
• Today: fifteen bilateral/plurilateral RTAs between Asian and LA countries
• …all of which have been signed in the last seven years
• Cover trade… and investment (“Singapore issues”)
• Important role of Korean on one side, Chile and Peru on the other side.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Trade openness (Exports+Imports)/GDP
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Asia LAC
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Share of exports to the region, Asia
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary Total
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Share of exports to the region, Latin America
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary Total
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Structure of exports, Asia
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Structure of exports, Latin America
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Industrial Agriculture Primary
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Aggregate Intra-Industry Trade Index
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Asia
Latin America
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Top three Revealed Comparative Advantages by
HS2 Chapter – 2007 • (Light grey: fish., agric. and transformed agric. products; dark grey: other
sectors)As Bangladesh 53 61 62
As Cambodia 61 62 64
As China 66 67 46
As India 50 57 52
As Indonesia 80 15 92
As Korea 60 89 54
As Lao PDR 74 9 44
As Malaysia 15 80 85
As Pakistan 63 52 57
As Philippines 46 13 85
As Sri Lanka 14 9 53
As Thailand 16 80 40
As Vietnam 46 64 9
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Top three Revealed Comparative Advantages by
HS2 Chapter – 2007 • (Light grey: fish., agric. and transformed agric. products; dark grey: other
sectors) SA Argentina 23 12 15
SA Bolivia 80 26 23
SA Brazil 12 17 9
SA Chile 74 26 47
SA Colombia 9 6 8
SA Costa Rica 8 6 9
SA Ecuador 8 6 16
SA El Salvador 61 9 17
SA Guatemala 9 17 61
SA Guyana 17 10 26
SA Honduras 9 61 8
SA Nicaragua 9 61 62
SA Panama 89 8 3
SA Paraguay 12 23 10
SA Peru 80 26 78
SA Uruguay 51 41 2
SA Venezuela 27 76 31
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Rate of protection applied on imports, average 1995-1998 and 2005-
2008
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
1995-1998 2005-2008
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Rate of protection applied on agric. imports, avrge 1995-1998 and 2005-
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
1995-1998 2005-2008
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Rate of protection faced by exports, average 2005-2008
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Main findings• Proliferation of RTAs, cross regional since 2004, cover trade and
investment
• Latin America:
• exports more oriented within the region,
• less IIT,
• more agricultural and primary exports,
• protection still high (exception: Chile) with low dispersion
• Asia:
• exports more oriented outside the region,
• More IIT,
• more industrial exports,
• Protection still high (exception: SGP, HK) with high dispersion
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Trade and Investment in Latin America and Asia
• Large economies (China, India, Brazil,
Argentina…)
• Complementary pattern of trade,
• Protection significant
• RTAs cover trade… and investment
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
POTENTIAL IMPACTS OF AN
ASIA-LAC FTA
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
• Implementation between 2010 and 2015
• Potential Impacts in 2020
• May not be a realistic FTA:
• all products included
• From Pakistan to Brazil
• With or without HIC Asian countries
• No modeling of trade liberalization in services
• MIRAGE CGE model
• Dynamic, Multi sector
• Main source of data: GTAP 7
• Additional source of data: MAcMapHS6v2
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Some innovations
• Consistent Tariff Aggregator
• Anderson (2009), Laborde (2008) and Laborde,
Martin and Van Der Mensbrugghe (2009)
• FDI
• Dataset based on Boumellassa, Gouel and Laborde
(2007)
• Modeling approach based on Laborde and Lakatos
(2009)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Modeling FDI (1)
Households Firms
Simultaneous choice of
location and destination sector of
investment
Total investment by
Household
Household savings from
region r
sector i in region r
sector i in region s
sector j in region r
sector j in region s
.....
Choice of the investment
location
Self financing capacity of
sector i
Cash flow of sector i in country r
sector i in region r
sector i in region s
.....
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Modeling FDI (2)
• Links between FTA, BIT and FDI
• Dilution effects?
• Links between Trade, FDI and Trade costs
• Other Expected effects:
• End of the tariff jumping arguments
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Real income - % changes compared to the baseline by
2020
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00 Basic model Large FTA
No FDI + Large FTA
Large FTA
Large FTA+BIT
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Real income, % changes compared to the baseline
-0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0.00
0.01
0.02
Basic model Large FTA No FDI + Large FTA
Large FTA Large FTA+BIT
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
With or Without Rich Asian countries, Real Income
variations
-0.50
0.00
0.50
1.00
1.50
2.00 Large FTA+BIT
"Developing FTA+BIT"
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Export variations, % changes compared to baseline
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00 No FDI + Large FTA
Large FTA
Large FTA+BIT
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Poverty reduction and Real wages, % changes compared
to baseline
-10.00
-5.00
0.00
5.00
10.00
15.00
An
de
an
Co
mm
un
itie
s
Arg
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a
AS
EA
N
Bra
zil
Ce
ntr
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me
rica
Ce
ntr
al A
sia
Ch
ile
Ch
ina
HK
_S
ing
arp
ore
Ind
ia
Ja
pa
n
Ko
rea
Re
st o
f A
sia
Re
st o
f M
erc
osu
r
So
uth
Asia
Ve
ne
zu
ela
An
de
an
Co
mm
un
itie
s
Arg
en
tin
a
AS
EA
N
Bra
zil
Ce
ntr
al A
me
rica
Ce
ntr
al A
sia
Ch
ile
Ch
ina
HK
_S
ing
arp
ore
Ind
ia
Ja
pa
n
Ko
rea
Re
st o
f A
sia
Re
st o
f M
erc
osu
r
So
uth
Asia
Ve
ne
zu
ela
Unskilled real wages Unskilled real wages in agriculture
No FDI + Large FTA
Large FTA
Large FTA+BIT
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Inwards FDI (baseline =1)
0.8
0.85
0.9
0.95
1
1.05
1.1
1.15
1.2
1.25
Large FTA
Large FTA+BIT
"Developing" FTA
Developing FTA+BIT
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Outwards FDI (baseline =1)
0.85
0.9
0.95
1
1.05
1.1
1.15
1.2
Large FTA
Large FTA+BIT
"Developing" FTA
Developing FTA+BIT
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