Strategic Options of Commercial Policy for Central America: Basic Guidelines
Creators:González Vega, Claudio
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Publisher:Ohio State University. Department of Agricultural, Environmental, and Development Economics
Series/Report no.:Ohio State University. Department of Agricultural Economics and Rural Sociology. ESO (Economics and Sociology Occasional Paper). No. 2236
After the ratification of NAFTA, the Central American countries face a more difficult set of commercial policy choices. Since conditions for Pareto optimality are not met, these are inevitably second-best situations, to be chosen in the presence of shifting constraints. Further, implementation of optimum intervention rules is prevented by incomplete organizational frameworks. The dynamic implications of trade constitute the most basic guideline for policy makers, however. The paper reviews the dynamic gains from trade, particularly pivotal in the case of the small Central American countries. The consequences of being small are further explored, to justify the inevitability of openness. Given small managerial teams, these countries must economize in their strategic behavior. Five strategic options analyzed are: (a) unilateral movement toward free trade; (b) a Central American free trade area; (c) consolidation of the CACM as a step towards accession to large markets; (d) bilateral trade agreements; (e) preferential access to U.S. market. The choices imply resource allocation, adjustment, political and transaction costs. The paper provides criteria to minimize these costs.
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