Latin America and the Caribbean experienced an acceleration in economic and wage growth thanks to the reduction of trade barriers, according to a new report by the Inter-American Development Bank (IDB), released on Monday (25.11.2019). The study also includes policy recommendations to ensure that the region is better positioned to benefit from trade liberalization and make the benefits more tangible for its citizens.
The average tariff reduction of 56 percent recorded in the region between 1990 and 2010 accelerated average annual GDP per capita growth by 0,6 percentage points., according to the report.
While the results are positive, the region is skeptical about the benefits of greater openness, partly because initial expectations were too high, says a study titled From promises to results in international trade: what global integration can do for Latin America and the Caribbean.
"Trade liberalization did not prove to be the silver bullet for boosting growth in the region as was the case for some high-performing Asian economies.“said Eric Parrado, Chief Economist of the IDB.However, Trade has clearly contributed positively to the well-being and development of the region., and we should resist the temptation to return to the closed economy policies of previous decades.".
From Promises to Results in International Trade is part of the Development in the Americas (DIA) flagship publication series, which offers analysis and recommendations to policymakers on key development issues.
The report, which was edited and coordinated by IDB researchers Ernesto Stein and Mauricio Moreira, also analyzed the level of support for free trade. Latin Americans broadly support trade expansion, but their support drops sharply when they are presented with information emphasizing the negative consequences it can bring, such as the loss of jobs in vulnerable sectors. The IDB commissioned Latinobarómetro to conduct a survey and carry out an experiment to better understand how perceptions of trade change depending on how the issue is addressed.
Nearly three out of four respondents said they preferred to increase international trade. The countries that showed the greatest support were Venezuela, Honduras and Uruguay. Nearly six out of ten Latin Americans see trade as synonymous with more employment. However, when they were given information about potential job losses in vulnerable sectors, that support dropped from 73 to 46 percent.
While liberalization is positive for the economy, there are both winners and losers, including special interest groups linked to import-competing sectors that often block trade reforms. The report offers an in-depth look at the processes of trade policy formulation and implementation in the region and the type of institutional architecture that tends to promote policies with positive outcomes.
To make the most of the opportunities offered by globalization while mitigating its risks, governments must look beyond the traditional agenda of trade agreements, trade facilitation and attracting foreign investment. Policymakers must strive to ensure that labour markets are not only more flexible, but also offer relief to losers. for trade openness, so that they can make a transition towards competitive companies and sectors.
Measures must be consistent with global integration, avoiding promoting sectors and companies that are not competitive. At the same time, Governments must seek successful strategies in sectors such as modern agriculture and services –two sectors with considerable technological progress in which the region has a competitive advantage– and not only in the industrial sector.
"We are moving towards a world in which competitiveness is determined not only by tariffs, but by the ability to overcome regulatory, logistical and information costs, and by incorporating new technologies.”, said Fabrizio Opertti, manager of the IDB's Integration and Trade sector. “We are confident that governments can move towards these new frontiers to facilitate access to goods and services, and create new economic opportunities and well-being for more citizens."He added.
Aduana News is the first Argentine customs newspaper to launch its digital version. With 20 years of experience, its publications and initiatives aim to provide the most relevant knowledge on customs issues in order to contribute to safe trade in the region.
