Can Free Trade Agreements Reduce Economic Vulnerability?
Free trade agreements between countries at different ends of the development spectrum have become increasingly common over the past decade. The impact that this type of arrangement has on trade flows has been widely modelled; however, the extent to which it can be expected to affect economic vulnerability is an aspect that has largely been overlooked. Yet as the economic distance between negotiating partners widens, the likelihood that changes in trade flows will affect the economic structure of the less developed partner increase. This paper explores the components of two prominent highly asymmetric negotiations – the Dominican Republic – Central America Free Trade Agreement and the European Union – Caribbean Forum Economic Partnership Agreement – to assess the channels through which the resulting organisation of trade may impact the vulnerability profile of the developing country partners. We find that these FTAs have the potential to address economic vulnerability in the developing country partners in ways that would not be possible in their absence.