Getting the Most Free Trade Agreements in Central America B J.Humberto Lopez and Rashmi Shankar, Editors. THE WORLD BANK Washington, D.C.

Transcription

1 Getting the Most Free Trade Agreements in Central America J.Humberto Lopez and Rashmi Shankar, Editors B THE WORLD BANK Washington, D.C.

2 Contents Preface Acknowledgments About the Contributors Abbreviations xvii xxi xxiii xxviii Chapter 1 Getting the Most out of Central America's Free Trade Agreements 1 /. Humberto Lopez and Rashmi Shankar What Is the Expected Impact on Trade Volumes from Central America's Efforts to Liberalize and Promote Trade? 5 What Is the Expected Impact on Growth from an Increase in Central America's Trade? 8 What Is the Complementary Agenda for Promoting Trade? 9 What Are the Expected Welfare Effects of Trade Liberalization and Promotion in Central America? 18 Notes 24 References 24

3 vi Contents Chapter 2 The DR-CAFTA and the Extensive Margin: A Firm-Level Analysis 27 Ana Cristina Molina, Maurizio Bussolo, and Leonardo lacovone The Data Export Trends Firm-Level Patterns of Extensive Margin Relationship between Tariff Reductions and Exporters' Behavior: Preliminary Evidence Empirical Strategy and Results Conclusions Notes References Chapter 3 Exports, Wages, and Skills: Implications for CAFTA 57 Irene Brambilla, Lucio Castro, and Guido Porto Firms in International Trade 58 Exporting, Productivity, and Wages: Causality 73 Conclusions and Policy Implications 77 Notes 79 References 79 Chapter 4 Trade and Economic Growth: Evidence on the Role of Complementarities for the DR-CAFTA Countries 83 Cesar Calderon and Virginia Poggio Literature Review 85 The Data 88 Econometric Methodology 90 Empirical Assessment 91 Trade and Growth: The Role of Complementarities 97 Economic Implications of Our Estimates: Discussion for DR-CAFTA 110 Concluding Remarks 117 Notes 118 References 119

4 Contents vii Chapter 5 Power Integration in Central America: From Hope to Mirage? 123 Juan Miguel Cayo What Does Power Integration Mean? The Political Economy of Integration Power Integration in Central America: The SIEPAC Project The Central America Power Sector in a Nutshell Obstacles to Integration of the Central American Power Sector Reality or Mirage? Conclusions Notes References Chapter 6 Supply Chain Analyses of Exports and Imports of Agricultural Products: Case Studies of Costa Rica, Honduras, and Nicaragua 151 Raquel Fernandez, Santiago Florez Gomez, Francisco Estrdzulas de Souza, and Henry Vega Case Studies of Agricultural Trade 153 Methodology and Sources 154 Supply Chain Analysis: Intraregional and Extraregional Trade 156 Main Logistics Challenges 157 Quantitative Results for the Fresh Tomatoes Supply Chain 162 Quantitative Results: Wheat, Rice, and Corn Supply Chains 168 Conclusions 176 Notes 177 References 179 Chapter 7 Logistics Challenges in Central America 181 Jose A. Barbero The Relevance of Logistics as a Factor in Trade 18 L The Impact of Logistics and Trade Facilitation on Trade Costs 182

5 viii Contents International Logistics Indicators Country Logistics Review Assessing Logistics Performance in Central America Policy Priorities to Enhance Trade Logistics Notes References Chapter 8 Access to Credit and Productivity in Central America 215 Inessa Love, Teresa Molina Milldn, and Rashmi Shankar Productivity and Access to Financial Services in Central America The Data Estimating Productivity Cross-Country Differences in the Relationship between TFP and Financial Products Conclusions Note References Chapter 9 Are Food Markets in Central America Integrated with International Markets? An Analysis of Food Price Transmission in Honduras and Nicaragua 245 Mario A. De Franco and Diego Arias Price Transmission of International to Domestic Prices of Food Products 249 Understanding the Price Transmission Results 255 Main Conclusions and Policy Implications 270 Notes 271 References 272 Chapter 10 Intellectual Property Rights and Foreign Direct Investment: Lessons for Central America 275 Walter G. Park Trends in IPRs and FDI in the DR-CAFTA Region 277 Regional Integration and FDI 286

6 Contents ix Intellectual Property Rights and FDI Implications for DR-CAFTA Concluding Remarks Notes References Chapter 11 Trade Openness and Labor Gender Gaps 309 Maurizio Bussolo, Samuel Freije, Calvin Z. Djiofack, and Melissa Rodriguez Literature Review 310 Recent Trade Patterns in DR-CAFTA Countries 313 Labor Gender Gaps in DR-CAFTA Countries 314 Methodology 326 Results 328 Conclusions 339 Notes 341 References 342 Chapter 12 Trade Liberalization and Welfare Distribution in Central America 345 Maurizio Bussolo, Samuel Freije, Calvin Z. Djiofack, and Melissa Rodriguez Literature Review Evolution of Poverty and Inequality in DR-CAFTA Countries Methodology Data Sources Results Conclusions Notes References Chapter 13 DR-CAFTA and the Environment 375 Muthukumara Mani and Barbara Cunha DR-CAFTA and the Environment 378 Trade and the Environment: A Review of the Literature 380

7 x Contents The Empirical Analysis 384 Results 388 Conclusions ' 397 Annex. The Data 397 Notes 401 References 401 Index 405 Box 1.1 Trade in Central America 2 Figures 1.1 Supply Chain Diagram of the Cost Contributions to the Average Price of Yellow Corn Used for Animal Feed in Nicaragua Dominican Exports, by Destination, Dominican Exports to CAFTA Members in Select Years, Number of Firms, by Export Status, Decomposition of the Firm-Level Extensive Margin, Extensive Margin, by Tariff Cut, Correlation between Growth and Trade Openness in DR-CAFTA Countries Correlations between Trade Openness and Growth, by Select Indicators of Economic Development Growth Response to a 1 Standard Deviation Increase in Trade Openness, by Level of Select Indicators of Development Growth Response to a 1 Standard Deviation Increase in Trade Openness, by Aggregate Stock of Select Infrastructure Growth Response to a 1 Standard Deviation Increase in Trade Openness, by Level of R&D Spending and Regulations Electricity Tariffs in Select Cities Central American Power Generation, by Type of Power, Electricity Exports, by Country, Breakdown of Costs for a Small Exporter of Tomatoes 163

8 Contents xi 6.2 Breakdown of Costs for a Large Exporter of Tomatoes Breakdown of Transport Costs for Small and Large Exporters Cost Components as a Percentage of the Final Price of the Good, by Product and Country Total In-Country Costs as a Percentage of the Final Price of the Good, by Product and Country Logistics Costs (Transport and Other Logistics Costs] as a Percentage of the Final Price of the Good, by Product and Country Other Logistics Costs as a Percentage of the Final Price of the Good, by Product and Country LPI Rank of Central American and Comparator Countries, 2007 and Performance on the LPI Subindexes of Central American and Comparator Countries Performance on Customs and Infrastructure of Central American and Comparator Countries, Quality of Overall Infrastructure of Central American and Comparator Countries, Performance on the Global Enabling Trade Index of Central American and Comparator Countries, TFP Growth Rates, by Region, TFP Growth Rates in Central America, by Country, Credit to the Private Sector and M2 as a Percentage of GDP in Central America, by Country, Transmission of Rice and Coffee Prices in Honduras Transmission of Rice and Coffee Prices in Nicaragua Gender Gaps in Labor Participation Rates [Women's Minus Men's] in DR-CAFTA Countries, Gender Gaps in Unemployment Rates [Women's Minus Men's] in DR-CAFTA Countries, Employment Shares, by Informal and Formal Status in DR-CAFTA Countries, ca Gender Gaps in Employment Shares [Women's Minus Men's Shares] in DR-CAFTA Countries, by Sector, ca

9 xii Contents 11.5 Gender Gaps in Informal Share of Employment [Women's Minus Men's Shares] in DR-CAFTA Countries, ca Informal Share of Employment in DR-CAFTA Countries, by Gender and Sector, ca Monthly Wage Gender Gaps in Urban Areas [Female Minus Male Percentage Difference] in DR-CAFTA Countries Monthly Wage Gender Gaps in Rural Areas [Female Minus Male Percentage Difference] in DR-CAFTA Countries Costa Rica: Trade Simulation Dominican Republic: Trade Simulation El Salvador: Trade Simulation Guatemala: Trade Simulation Honduras: Trade Simulation Nicaragua: Trade Simulation Average Pollution per Year, before and after DR-CAFTA Negotiations (pounds, millions] Decomposition in Total Emissions: Baseline Scenario Decomposition in Total Emissions: Alternative Scenario 392 Tables TFP Premiums of Exporters 7 Wage Premiums of Exporters 18 Environmental Regulatory Regime Index 23 Summary Statistics, Select Years, OLS Estimates of the Number of New Exporters 44 OLS Estimates of the Number of Exporters Adding New Product-Market Relationships 46 Estimates of the Probability of Exit 48 Exporting by U.S. Manufacturing Firms, Exporter Premiums in U.S. Manufacturing, Exporting and Importing by U.S. Manufacturing Firms, Trading Premiums in U.S. Manufacturing, Productivity and Wage Exporter Premiums in Latin America and the Caribbean 64 Exporting and Productivity Gains, by Investment Climate 66 Wage Premiums, by Investment Climate 69

10 Contents xiii 3.8 Exports and the Industry Skill Premium Exports, Export Destination, and Wages: Wage Regression with Instrumental Variables Trade and Growth: Baseline Regression under Different Estimation Techniques Trade and Growth: Interaction with Structural Factors and Policies Trade and Growth: The Role of Physical Infrastructure Trade and Growth: The Role of Innovation Trade and Growth: The Role of Regulations Growth Effects due to Changes in Trade Openness Breakdown of Costs for a Small Exporter of Tomatoes Breakdown of Costs for a Large Exporter of Tomatoes Supply Chain Analysis and Cost Contributions to the Average Price of Wheat Flour Sold in San Pedro Sula, Honduras Supply Chain Analysis and Cost Contributions to the Average Price of Wheat Flour Sold in Managua Breakdown of Cost Components Performance on Doing Business Indicators of Trading across Borders of Central American and Comparator Countries Freight Flows in Costa Rica, by Mode of Transport Geographic and Demographic Penetration of Branches and ATMs in Central America, by Country Distribution of Firms in Central America, by Country and Size of Firm Use of Financial Products in Central America, by Size of Firm Descriptive Statistics for Survey Variables Correlations among Financial Indicators TFP Estimation Correlations among Estimated TFP and Observed Labor Productivity Access to Credit and TFP value added Access to Credit and Labor Productivity Use of Financial Instruments in Central America, by Country 236

11 xiv Contents 8.11 Use of Financial Instruments, by Country and Size of Firm OLS Regression: TFP, by Country OLS Regression: Labor Productivity, by Country Probit: TFP and Exports Weight of Tradables of Select Food Products in Nicaragua, Growth in Domestic Prices in Nicaragua Given a Permanent Increase of 10 Percent in the International Price Change of Consumer Prices in Honduras Given a Permanent Increase of 10 Percent in International Prices, by Region Findings of Estimates of Price Transmission Analysis of Select Food Products in Honduras and Nicaragua Number and Market Share of Large Agribusiness Companies in Nicaragua, Number and Export Share of Large Exporters in Nicaragua, Elasticity of Substitution of Demand for Select Food Products in Nicaragua, by Quintile Elasticity of Substitution of Demand for Select Food Products in Honduras, by Level of Poverty Importance of Demand Factors in Explaining Domestic Food Price Deviations in Nicaragua and Honduras Price Wedges for Select Agricultural Products for Honduras, 2006 and Price Wedges for Select Agricultural Products in Nicaragua, 2006 and Strength of Patent Protection in DR-CAFTA Countries and Comparison Groups, Intellectual Property Provisions in DR-CAFTA Countries, Correlations among Intellectual Property Measures Flows of Foreign Direct Investment in DR-CAFTA Countries and Comparison on Groups, Stocks of Foreign Direct Investment in DR-CAFTA Countries and Comparison Groups,

12 Contents xv 10.6 Amount of U.S. Foreign Direct Investment in DR-CAFTA Countries and Comparison Groups, Historical Cost Basis, , U.S. Foreign Direct Investment in DR-CAFTA Countries and Comparison Groups, by Industry, Average Sources of Data Used Regressions of Coefficients on Trade Variables in the Labor Market Models Summary of Results on the Impact of Trade Variables in Wage Models Simulated Impact of Trade Liberalization through Different Indicators Change in Explanatory Variables in DR-CAFTA Countries, by Sector Data Sources Price Changes in DR-CAFTA Countries in Select Periods Environmental Regulatory Regime Index, Regression Analysis: CA Regression Analysis: CA-4 Countries A.1 Regression Variables A.2 Full Regression Analysis: CA-4 Countries 399