Operations Policy Group

WPS163aPOLICYRESEARCHWORKINGPAPER1632EvaluatingBolivia'sChoicesBoliichhaslibralizedBstraderegimeuniaterallyonforTradeIntegrationamost-tvored-nationbasis-nMwfatesanumberofchoicesformaintainingitsSarathRajapatiranaposWonwfthfntheAndeanGroupandforreceivingpreferentialaccesstoMercosur.Giventhesizeofthemarketanditspotentialforexportgrowth,apreferentialarrangementwithMercosurisprobablythebestchoice.TheWorldBankOperationsPolicyDepartmentOperationsPolicyGroupAugust1996POLICYRESEARCHWORKINGPAPER1632SummaryfindingsRegionalintegrationinitiativeshavesurgedinLatinl.MFN-basedtradecombinedwitharegionalAmericaatthesametimethatmanycountriesontheagreementthatgivesitpreferentialaccesstoMercosurcontinenthaveundertakenunilateraltradeliberalization,(GATT-plustrade).andprospectsforaccesstoexternalmarketshave2.JoiningMercosurandmaintainingduty-freeaccessimprovedwiththesuccessfulconclusionoftheUruguaytotheAndeanGroup.Round.Rajapatiranaexaminesthechoicesfacedbyone3.RemainingwithintheAndeanGroupandreceivingsuchcountry:Bolivia.additionalmarket-accessconcessionsfromMercosur.Totheextentthatdifferentregionaltradeagreements4.RemainingwithintheAndeanGroupandfollowWorldTradeOrganization(WTO)rules,theymaintainingexistingbilateraltradingarrangements.couldincreaseaccesstomarketsandallowthecountriesTheserankingsmerelyreflectrelativetradeaccesstotorealizegainsthatunilateralliberalizationmightnotdifferentmarkets,assumingstabilityofdemandfunctionshavegiventhem.Inthissense,regionaltradeandtradeandproductionpatterns.Inthefinalanalysis,arrangementarenotinconsistentwithmultilateralfreeregionalintegrationisnotmerelyamatterofeconomicstradebasedonthemost-favored-nation(MFN)principle.butisrelatedtodomesticandregionalpolitics-andEstimatingexportdemandfunctionsusingordinarythosewhogainfromdifferentchoiceswillsupportthoseleastsquaresfordifferentmarketsaswellasanerrorchoices.MFNtradewouldelicitneitherstrongcorrectionmodel,constructingatradecompatibilityoppositionnorstrongsupport,asitsbenefitsandcostsindex,andrecognizingthepresenceofcontrabandtrade,aremoresymmetricallydistributedthantradeassociatedRajapatiranaexaminesBolivia'sfourmainoptionsforwithincreasedregionalintegration.regionalintegrationandranksthemasfollows(withIbeingBolivia'sbestchoice):Thispaper-aproducroftheOperarion-sVolicyGroup,OperationsPolicyDepartment-ispartofalargereffortinthedepartmenttodisseminateresultsofpolicyanalysis.CopiesofthepaperareavailablefreefromtheWorldBank,1818HStreetNW,Washington,DC20433.PleasecontactLuisSchunk,roomMC10-360,telephone[phone],fax[phone],Internetaddresslschunk((@'worldbank.org.August1996.(36pages)ThePolicyResearchWorkingPaperSeriesdisseminatesthefindingsofworkinprogresstoencouragetheexchangeofideasaboutdevelopmentissues.Anobjectiveoftheseriesistogetthefindingsoutquickly,evenifthepresentationsarekssthanfullypolished.Thepaperscarrythenamesoftheauthorsandshouldbeusedandcitedaccordingly.Thefindings,interpretations,andconclusionsaretheauthors'ownandshouldnotbeattributedtotheWorldBank,itsExecutiveBoardofDirectors,oranyofitsmembercountries.1'roducedbythePolicvResearchDisseminationCenterEvaluatingBolivia'sChoicesforTradeIntegrationSarathRajapatiranaTheauthorwishestothankDeborahBateman,VicenteFretes-Cibils,NormanHicksandDemetrisPapageorgioufortheircommentsonanearlierversionofthepaperwithoutimplicatingthemforanyerrorsthatremain.DeborahBatemanhelpedtoimprovethepaperconsiderablybyrestructuringittobringoutthechoicesclearly.ThanksarealsoduetoMontagueLordofBoye-LordInternationalLtd.forhisadviceontheuseoftheErrorCorrectionmodelandCherianSamuelforresearchassistance.JoyTroncoso,LuisSchunk;andXuanDaoThiLeprovidedexcellentassistanceinprocessingthepaper.IEvaluatingIntegrationChoices:TheCaseofBoliviaTableofContentsI.Introduction.....................................1II.TradeCompositionandTrends.....................................3III.Integration.....................................7IV.QuantitativeAnalysisoftheIntegrationChoices....................................13V.SummaryandConclusions....................................23REFERENCESAPPENDIXTable1:BolivianTermsofTradeIndex..28Table2:BolivianImports,ExportsandGrowthRates..28Table3:Bolivia:DirectionofImportsandExports..29Table4:ExportsbyRegionandCategory,USA..30-31Table5:CommodityCompositionofBolivianImports..32-33Table6:SmugglingIndexes:1980-1993..34Table7:RegressionResultsforBolivia'sexportstoMERCOSUR,Andean,andWorld:1980-1993..35Table8:IndexesofTradeCompatibility..36I.IntroducdonInthemid1980stothe1990s,therehavebeenaspateofregionalintegrationinitiativesinmanypartsoftheworld.TheseinitiativeshavearisenatthesametimetheUruguayRoundnegotiationshadbeenproceedingandwhenmanycountrieshadundertakenunilateraltradeliberalization.TheintegrationchoicesthatcountriesfacehavetobeevaluatedinrelationtotheothertwocontemporarymovementsofmultilateraltradeliberalizationundertheUruguayRoundandunilateraltradeliberalization.TheintegrationchoicesarethewidestinLatinAmerica.Alargenumberofcountriesnowbelongtoonetradinggrouporanother.Moreover,countriesin