Trade and Welfare Effects of the Great Liberalization in Latin America and the Caribbean: A General Equilibrium Approach

Using the multisector, heterogeneous-firm general equilibrium trade model of Caliendo et al. (2017), this paper carries out five exercises to understand the trade and welfare effect of trade liberalization in Latin America and the Caribbean (LAC). First, it evaluates the overall tariff reduction effect (of both MFN and preferential tariffs) on all 26 LAC countries between 1990 and 2015. Second, it evaluates the tariff reduction effect on each LAC26 country independently. Third, it examines the effect of five different LAC preferential trade agreements. Fourth, it runs a policy experiment to ascertain the effect of the least liberalized countries in the region lowering their MFN tariff to the average OECD level. Last, it analyzes the effect of a complete free trade agreement between the LAC26 countries.