Free Trade Agreements, Poverty and Inequality in Central America

We use a top-down macro-micro approach to estimate the e§ects on poverty and income inequality of two major trade agreements in Central America: DR-CAFTA and EU-CAAA. We Örst employ a macro CGE application to assess the main changes in factor and goods prices associated with each trade agreement; and then combine this information with household surveys for Costa Rica and Nicaragua. Headcount poverty is reduced in both countries, although DR-CAFTA provides the largest decreases. Inequality in Costa Rica remains unchanged with both agreements, although it increases slightly in Nicaragua under the EU-CAAA.