Adjustment Problems in Developing Countries and the U.S.-Central America-Dominican Republic Free Trade Agreement

This article examines changes in intraindustry specialization indicators over the 1992–2006 period to assess the potential for factor adjustment problems that may arise in Central American countries and the Dominican Republic (CA/DR) with trade growth resulting from the U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR). Results show there is considerable scope for intraindustry specialization between CA/DR countries and their most important trading partner. Few CA/DR industries are likely to encounter adjustment problems. When adjustment problems are indicated, extended phase-out periods for tariffs, tariff-rate quotas, and import safeguards are used to ease factor adjustment pressures in import-sensitive industries.