Understanding the Benefits of Regional Integration to Trade : The Application of a Gravity Model to the Case of Central America
The paper identifies the impact of physical barriers to trade within Central America through the use of an augmented and partially constrained Gravity Model of Trade. Adjusting the Euclidian distance factor for Central America by real average trans...
| Main Authors: | , , |
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| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101214085824 http://hdl.handle.net/10986/3990 |
| Summary: | The paper identifies the impact of
physical barriers to trade within Central America through
the use of an augmented and partially constrained Gravity
Model of Trade. Adjusting the Euclidian distance factor for
Central America by real average transport times, the model
quantifies the impact of poor connectivity and border
frictions on the region's internal trade as well as its
trade with external partners, such as the United States and
Europe. In addition, the authors benchmark Central
America's trade coefficients against those of a
physically integrated region by running a parallel Gravity
Model for the 15 core countries of the European Union. This
allows for the estimation of potential intra-regional and
external trade levels if Central America were to reduce
border frictions and time of travel between countries and
thus benefit from both the adjacency of each country's
neighbors and the gravitational pull of the region's
economies. The analysis is conducted for all of Central
America's trade and is also disaggregated for three
groups of products -- processed fruits and vegetables; steel
and steel products; and grains -- by both volume and value.
This differentiation tests the consistency of the results
while providing insight into the differentiation in trading
patterns and potential for these containerized, break-bulk,
and bulk products. The results of the model include a
potential doubling in intraregional exports if Central
America could achieve the adjacency and time-distance
factors of a truly integrated region. In addition, the
region's combined exports to the European Union and the
United States are projected to increase by more than a third
compared with the current level, assuming European
Union-level adjacency performance. Even more external trade
benefits would accrue by reducing the economic penalty
imposed by overland transport and border crossing inefficiencies. |
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