Economic Perspectives for Central America after CAFTA: A GTAP-based Analysis

Abstract

Abstract: Using a GTAP CGE application we assess the main economic results of CAFTA for Central America (CA). Currently CA enjoys preferential access to the US market through the CBI. CAFTA will consolidate and augment these concessions. Meanwhile, the agreement requires widespread opening of CA markets to US imports over time. The implementation of the ATC protocol in 2005 implies increased Chinese competition for the region. Thus, CAFTA will balance for this new source of competition in the textile and apparel sectors, while creating large opportunities for labor market improvements and FDI inflows to CA. If these opportunities are exploited, the region has much to gain from CAFTA. However, we also find a strong sectoral readjustment of resources from agricultural sectors to maquila-based industries, which could create important adjustment strains.

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