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GTAP Resource #2373

"Paraguay and the United States and the Dilemma of Playing Aloor in a Team: A General Equilibrium Analysis"
by Santander, Horacio, Edgar Gomez Leiva, Francisco Carlos Ruiz Diaz López and Carlos Ludena

After the failure of the FTAA, the U.S. has pursued a policy of bilateral free trade agreements, deepening its trade liberalization agenda in the region. Such agreements include countries both in Central America and the Caribbean (DR-CAFTA) and in South America (Chile, Colombia, Peru). In MERCOSUR, Uruguay has asked, and being denied by Brazil and Argentina, for the approval of a flexibility mechanism that would allow to bilaterally negotiate a FTA with the U.S. Meanwhile, Paraguay has not officially expressed its interest to mimic Uruguay’s strategy; however a FTA with the U.S. is still attractive for Paraguay, and has to be considered. The objective of this paper is to quantify the effects of an FTA with the U.S. that would allow to objectively evaluate the possible benefits on Paraguay’s economy of deepening trade relations with the U.S. We use a CGE model, and consider different scenarios that evaluate for Paraguay whether to negotiate bilaterally or with MERCOSUR. The results show that such a FTA would bring a modest increase in welfare and GDP for Paraguay, while bilateral trade with the U.S., both exports and imports, would increase. This would cause trade diversion from other partners, especially from Brazil. An FTA would boost natural resource intensive manufactures, while decreasing production in labor intensive manufactures as a consequence of the complementary of both economies and their corresponding competitive advantages. At the sectoral level, sugar would benefit the most while machinery and equipment would be most affected on both production and exports. We conclude overall that it makes little difference for Paraguay to negotiate with the U.S. either bilaterally or along with MERCOSUR.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: Cuaderno de Economía No. 2. Dertamento de Economía, Universidad Católica del Uruguay
Date: 2007
Created: Gomez Leiva, E. (4/14/2007)
Updated: Ludena, C. (5/15/2008)
Visits: 3,620
- Economic growth
- Economic development
- North America
- South America

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