Trade agreements and Latin American trade (creation and diversion) and welfare

This study analyses the process of economic integration in Latin America. Making use of a structural gravity model and including intra-national trade flows, this paper provides an ex-post assessment of the effect of the trade agreements (TAs) signed by Latin American countries on international trade. We account for the last wave of TAs proliferation and estimate treaty-level effects. On average, TAs had a positive effect on Latin American trade. This holds true for both intra-Latin American agreements and agreements between Latin American countries and the Rest-of-the-World (RoW). However, we unveil that these average estimates cover a substantial degree of heterogeneity across TAs. Additionally, we quantify ex-ante general equilibrium effects on the trade volumes and welfare of Latin American countries under different scenarios of deeper trade integration and disintegration.