Contagion Time

Ah, remember the good old days, back in the early 2000s, when the certain and ever lasting benefits of "free trade" with the U.S., extolled as a sure route to development-freedom-democracy-and-awesomeness, offered us comfort from the anguish of our fleeting, uncertain and all around unknowable world? Well that was then and this is now.

According to a new study by the IMF, Central American contagion from the global financial crisis is largely due to increased trade integration with the U.S., which was caused primarily by, you guessed it, the Dominican Republic and Central American Free Trade Agreement (DR-CAFTA). In other words, DR-CAFTA countries have become more dependent on U.S. markets and thus more vulnerable to recessions from up north. According to the study:

"A one percent shock to U.S. growth shifts economic activity in Central America by 0.7 to 1 percent... Shocks to advanced economies associated with the 2008-09 financial crisis are found to have lowered economic activity in the region by about 4 to 5 percent, on average, accounting for a majority of the observed slowdown."

Well, there you have it: "freer trade" with the U.S. has amplified the transmission of recessions to Central America. Hey at least free trade agreements still have all those other wonderful provisions on intellectual property, industrial policy, environmental and labor standards and... oh wait, never mind.