Trade and Investment between Asia and Latin America: Lessons and opportunities

Trade and Investment in Latin America

and Asia: Lessons from the Past and

Potential Perspectives from Further

Integration

Antoine Bouet ([email protected]) & David Laborde ([email protected])

Valdete Berisha-Krasniqi & Carmen Estrades

IFPRI

Lima, March 23rd 2010

mailto:[email protected]

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Trade and Investment in Latin America and Asia

• Growth performance of both regions

• Structural reforms, in particular on trade

• These regions are so different

• RTAs are multiplying all over the world

• South-South Cross Regional RTAs are unusual,

at least before 2004

• New RTAs cover trade… and investment

• Building blocks vs. stumbling blocks



• Structure of the presentation

• A. Institutional point of view

• B. Trade and Policy characteristics of both regions

• C. Modeling a FTA between both regions

• With traditional model

• With new model focusing on the interrelation

between trade and investment



• A. Institutional point of view

• Both regions: from import substitution strategies to

trade (unilateral/regional/multilateral) liberalization

• Gradual approach in Asia… rapid liberalization in

Latin America

• Different exchange rate strategies



• Proliferation of RTAs worldwide

• … and especially in Asia and LA

• In Asia RTAs mostly driven by Japan and Singapore

• … China and India are also key players

• China and India have mostly signed with developing countries

• Cross regional RTAs, with Singapore in particular

• This gives birth to the “noodle” Bowl





• 91 RTAs currently in effect involving at least LA

countries

• Majority are bilateral agreements.

• From 2000, cross regional agreements with

Chile as the key driver (EU, US, EFTA, Korea,

China, Australia…).

• This gives another “Spaghetti” (?) bowl





• Trade and investment relations between the two regions

• Relatively new phenomenon (Medalla and Balboa, 2009)

• Today: fifteen bilateral/plurilateral RTAs between Asian and LA countries

• …all of which have been signed in the last seven years

• Cover trade… and investment (“Singapore issues”)

• Important role of Korean on one side, Chile and Peru on the other side.



• Trade openness (Exports+Imports)/GDP

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Asia LAC



• Share of exports to the region, Asia

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Industrial Agriculture Primary Total



• Share of exports to the region, Latin America

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Industrial Agriculture Primary Total



• Structure of exports, Asia

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Industrial Agriculture Primary



• Structure of exports, Latin America

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Industrial Agriculture Primary



• Aggregate Intra-Industry Trade Index

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Asia

Latin America



• Top three Revealed Comparative Advantages by

HS2 Chapter – 2007 • (Light grey: fish., agric. and transformed agric. products; dark grey: other

sectors)As Bangladesh 53 61 62

As Cambodia 61 62 64

As China 66 67 46

As India 50 57 52

As Indonesia 80 15 92

As Korea 60 89 54

As Lao PDR 74 9 44

As Malaysia 15 80 85

As Pakistan 63 52 57

As Philippines 46 13 85

As Sri Lanka 14 9 53

As Thailand 16 80 40

As Vietnam 46 64 9



• Top three Revealed Comparative Advantages by

HS2 Chapter – 2007 • (Light grey: fish., agric. and transformed agric. products; dark grey: other

sectors) SA Argentina 23 12 15

SA Bolivia 80 26 23

SA Brazil 12 17 9

SA Chile 74 26 47

SA Colombia 9 6 8

SA Costa Rica 8 6 9

SA Ecuador 8 6 16

SA El Salvador 61 9 17

SA Guatemala 9 17 61

SA Guyana 17 10 26

SA Honduras 9 61 8

SA Nicaragua 9 61 62

SA Panama 89 8 3

SA Paraguay 12 23 10

SA Peru 80 26 78

SA Uruguay 51 41 2

SA Venezuela 27 76 31



• Rate of protection applied on imports, average 1995-1998 and 2005-

2008

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

1995-1998 2005-2008



• Rate of protection applied on agric. imports, avrge 1995-1998 and 2005-

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1995-1998 2005-2008



• Rate of protection faced by exports, average 2005-2008

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70



• Main findings• Proliferation of RTAs, cross regional since 2004, cover trade and

investment

• Latin America:

• exports more oriented within the region,

• less IIT,

• more agricultural and primary exports,

• protection still high (exception: Chile) with low dispersion

• Asia:

• exports more oriented outside the region,

• More IIT,

• more industrial exports,

• Protection still high (exception: SGP, HK) with high dispersion



• Large economies (China, India, Brazil,

Argentina…)

• Complementary pattern of trade,

• Protection significant

• RTAs cover trade… and investment


POTENTIAL IMPACTS OF AN

ASIA-LAC FTA


• Implementation between 2010 and 2015

• Potential Impacts in 2020

• May not be a realistic FTA:

• all products included

• From Pakistan to Brazil

• With or without HIC Asian countries

• No modeling of trade liberalization in services

• MIRAGE CGE model

• Dynamic, Multi sector

• Main source of data: GTAP 7

• Additional source of data: MAcMapHS6v2


Some innovations

• Consistent Tariff Aggregator

• Anderson (2009), Laborde (2008) and Laborde,

Martin and Van Der Mensbrugghe (2009)

• FDI

• Dataset based on Boumellassa, Gouel and Laborde

(2007)

• Modeling approach based on Laborde and Lakatos

(2009)


Modeling FDI (1)

Households Firms

Simultaneous choice of

location and destination sector of

investment

Total investment by

Household

Household savings from

region r

sector i in region r

sector i in region s

sector j in region r

sector j in region s

.....

Choice of the investment

location

Self financing capacity of

sector i

Cash flow of sector i in country r

sector i in region r

sector i in region s

.....


Modeling FDI (2)

• Links between FTA, BIT and FDI

• Dilution effects?

• Links between Trade, FDI and Trade costs

• Other Expected effects:

• End of the tariff jumping arguments


Real income - % changes compared to the baseline by

2020

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00 Basic model Large FTA

No FDI + Large FTA

Large FTA

Large FTA+BIT


Real income, % changes compared to the baseline

-0.06

-0.05

-0.04

-0.03

-0.02

-0.01

0.00

0.01

0.02

Basic model Large FTA No FDI + Large FTA

Large FTA Large FTA+BIT


With or Without Rich Asian countries, Real Income

variations

-0.50

0.00

0.50

1.00

1.50

2.00 Large FTA+BIT

"Developing FTA+BIT"


Export variations, % changes compared to baseline

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00 No FDI + Large FTA

Large FTA

Large FTA+BIT


Poverty reduction and Real wages, % changes compared

to baseline

-10.00

-5.00

0.00

5.00

10.00

15.00

An

de

an

Co

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un

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Arg

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AS

EA

N

Bra

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Ce

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Ce

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Ch

ile

Ch

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HK

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Ind

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Ja

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Ko

rea

Re

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Re

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So

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Asia

Ve

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An

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Arg

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AS

EA

N

Bra

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Ce

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Ce

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Ch

ile

Ch

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HK

_S

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arp

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Ind

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Ja

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Ko

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Re

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Re

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So

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Asia

Ve

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Unskilled real wages Unskilled real wages in agriculture

No FDI + Large FTA

Large FTA

Large FTA+BIT


Inwards FDI (baseline =1)

0.8

0.85

0.9

0.95

1

1.05

1.1

1.15

1.2

1.25

Large FTA

Large FTA+BIT

"Developing" FTA

Developing FTA+BIT


Outwards FDI (baseline =1)

0.85

0.9

0.95

1

1.05

1.1

1.15

1.2

Large FTA

Large FTA+BIT

"Developing" FTA

Developing FTA+BIT

Education

Trade and Investment between Asia and Latin America: Lessons and opportunities