Fiscal policy and the Free Trade Agreement: Mexico, the Caribbean and Central America

Author(s): Worrell, DeLisle (1996)

Created 22 Jul, 1996
Categories Working Papers
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The thesis of this paper is that when countries of very unequal economic power are as closely linked as are the US, Canada, Mexico, that Caribbean and Central America free trade arrangements make little difference. With or without a formal free trade agreement Mexico, the Caribbean and Central America are constrained to similar policies. The most effective policy, if government has the required credibility, is the use of fiscal adjustment to anchor the exchange rate. The experiences of the Caribbean Basin suggest nothing else stabilizes the economy as effectively or creates the circumstances for sustained growth.

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