Trade Integration Agreements in Latin America: the role of Interests, Ideas and Institutions

Trade policy has been acknowledged as a tool for development of Latin American countries since the decades of 1950s and 1960s. At that moment, the imports substitution model directed by the State did not allow the establishment of free trade and within the region. After the economic crises in the 1980s, the Latin American countries reoriented their economic patterns towards an outward export promotion model leaded by the private initiative. The following liberalization fostered trade integration: old agreements were revived and new ones born in the region. These agreements were created under different principles and political and economic interests, which generated divergent schemes that explored different ways to approach regional integration. Structural and interest group approaches have attempted to explain this variation. However, in spite of a flourishing literature on domestic institutions, the influence of institutional variables has been neglected and the role of ideas has been overlooked. This paper fits into the literature on the political economy of Latin American trade integration by adapting endogenous trade theory to explain the variations in the design of trade integration agreements. To answer this issue, several variables that operationalize systemic, interest groups, ideational, and institutional variables are constructed or compiled. Based on these variables, a statistical model is developed. The results are explained, linked and contrasted within a demand-supply framework. The period covered starts with the initiation of the debt crisis, 1982, until 2007.