How Might CAFTA Change Macroeconomic fluctuations in Central America? Lessons From NAFTA

32 Pages Posted: 28 Oct 2019

See all articles by Alessandro Rebucci

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Date Written: December 31, 2004

Abstract

This paper examines the potential impact of theCentral America Free Trade Agreement (CAFTA) on macroeconomic fluctuations in Central America in light of Mexico’s NAFTA experience. CAFTA and NAFTA share a number of common characteristics as both agreements envisage comprehensive tariff reductions, cover a broad spectrum of sectors, and include provisions about settlement of disputes. NAFTA helped spur a dramatic increase in trade and financial flows between the member countries and was associated with significant changes in the Mexican business cycles. The findings in this paper suggest that CAFTA could also result in similar effects. In particular, CAFTA could boost trade and financial flows between the United States and the Central American countries. The agreement also could play a major role in reducing the volatility of business cycle fluctuations in the region and could lead to an increase in the degree of co-movement of business cycles in the Central American economies and the United States.

Keywords: Macroeconomic fluctuations, Regional integration, Volatility, NAFTA, CAFTA

Suggested Citation

Rebucci, Alessandro and Kose, M. Ayhan, How Might CAFTA Change Macroeconomic fluctuations in Central America? Lessons From NAFTA (December 31, 2004). Journal of Asian Economics, Vol. 16, 2005, Available at SSRN: https://ssrn.com/abstract=3407714 or http://dx.doi.org/10.2139/ssrn.3407714

Alessandro Rebucci (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

M. Ayhan Kose

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Australian National University (ANU)

Canberra, Australian Capital Territory 2601
Australia

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