IMF Working Papers

The Dynamics of Trade Integration and Fragmentation in LAC

By Rafael Machado Parente, Flavien Moreau

December 13, 2024

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Format: Chicago

Rafael Machado Parente, and Flavien Moreau. "The Dynamics of Trade Integration and Fragmentation in LAC", IMF Working Papers 2024, 253 (2024), accessed January 13, 2025, https://doi.org/10.5089/9798400296093.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Trade barriers and poor infrastructure play an important role in limiting trade integration in Latin America and the Caribbean (LAC). Closing half of the infrastructure gap between LAC and advanced economies could lift exports by 30 percent. Reducing import tariffs could boost LAC’s trade, but its responsiveness is lower than in other EMDEs, particularly in the long run, due to the region’s specialization in agricultural exports with inelastic demand and supply constraints like growing cycles and weather conditions. Amid deepening global trade tensions, LAC is well placed to withstand a mild trade fragmentation scenario, in which trade barriers are erected only among large economies. However, the region’s output losses could be sizable in more extreme scenarios, where the global economy splinters into competing economic blocs and LAC loses access to important markets. Boosting trade, including regional trade, could pay a double dividend of lifting growth in the region while mitigating risks from global fragmentation.

Subject: Exports, Imports, International trade, Tariffs, Taxes, Trade balance, Trade policy

Keywords: Caribbean, Central America, Europe, Exports, Fragmentation scenario, Geoeconomic fragmentation, Global, Goods imports, Gravity, Import tariff, Imports, LAC's trade, Latin America and the Caribbean, South America, Tariffs, Trade balance, Trade barriers, Trade performance, Trade policy

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