Trading Promises for Results: What Global Integration Can Do for Latin America and the Caribbean



Mauricio Mesquita Moreira and Ernesto Stein | Inter-American Development Bank

Thirty years after the region embarked on large-scale liberalization, trade policy could have been expected to become all but irrelevant. Instead, a mismatch between expectations and what could realistically be delivered set the stage for much of the disappointment, skepticism, and fatigue regarding trade policy in the region, particularly in the early 2000s. By setting the bar unrealistically high, governments and analysts made trade policies an easy target for special interests that were hurt by liberalization and for those ideologically opposed to free trade. The most immediate victims were the more tangible growth and welfare gains, whose relevance was lost amid the noise of grandiose visions. Liberalization made most countries better off, on the back of substantive productivity gains. The growth results are also impressive. On the other hand, the employment and inequality outcomes fell short of expectations. Acknowledging these lessons on the limits of trade and investment policies and the need for complementary action is important, but putting together an effective policy agenda for the future involves other challenges—some old, some new—brought on by geopolitical and technological changes. Trade is a hot issue in today’s world, and this book provides informed suggestions on how Latin America and the Caribbean can successfully confront this heat.
Chapter Highlights
  • Excessive expectations on the promises of free trade led to disappointment, skepticism and reform fatigue, and in some cases, to policy reversals.
  • Liberalization brought many benefits, including faster growth. Our study finds that a tariff cut accelerates per capita GDP growth. And most Latin Americans favor deeper integration.
  • Some sectors and workers lose with free trade, however, and have incentives to block trade reform. Implementing good trade policies requires a deep understanding of the political economy of trade policy and an adequate institutional architecture for trade policy management.
  • Successful trade policies also require a complementary agenda to facilitate factor reallocation and protect those who are made worse off, in order to make the most of the opportunities offered by global integration, while mitigating associated risks.
IDB Trading Promises

To read original chapter, click here