The Free Trade Agreement between Colombia and USA: What Can Happen to Colombia?

In order to assess the impact of a Free Trade Agreement (FTA) between Colombia and the United States of America, we describe the characteristics of the Colombian economy emphasizing its trade patterns and perspectives and identifying the sectors and regions that are likely to be the most sensitive to a FTA. We argue that the effects of a bilateral trade agreement between the USA and Colombia would be similar to those of past trade reforms. However, as Colombia and the USA negotiate the agreement, many other Latin American countries are about to sign trade agreements with the USA. Therefore, the Colombian economy is likely to be affected also by the change in trade rules among its partners. We first analyze the effect of past reforms in Colombia and Mexico, which is our benchmark, and then, using an applied multiregional general equilibrium model, simulate the effects over the Colombian economy of a bilateral agreement with USA. We conclude that, although moderate, there will be an increase in welfare and production of the Colombian consumers and firms.

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