Mr. Jorge I Canales Kriljenko, Padamja Khandelwal, and Mr. Alexander Lehmann
We assess the current barriers to trade in financial services in the six Central American countries seeking a free trade agreement with the United States (the CAFTA) and examine the relative merits of regional and multilateral liberalization. Even though there are few formal barriers, deficiencies in regulatory and competition standards and in the judicial systems still restrict the participation of foreign institutions in the financial systems in the region. A greater presence of such institutions could support other objectives of trade and investment liberalization, though it would require several adjustments in prudential supervision at national levels and greater cooperation between members of the CAFTA.
WORLD TRADE MODELS have been developed both because of the inherent interest in the flow of resources from country to country and as a remedy for the oversimplified treatment of the foreign sector in domestic models. In most domestic models, the foreign sector is treated either as autonomous and predetermined or as a function of domestic factors exclusively.2 The international economy, however, is a complex network of interrelated trade flows, capital movements, and payments settlements. It is a system in which domestically induced changes in one country’s income, prices, and other economic forces affect economic activity in other countries, which in turn transmit the changes on to each other and to the country of origin. These influences are especially important in the formulation of domestic policies and in the international coordination of national economic policies.