Would a free trade agreement between Bolivia and the United States prove beneficial to Bolivian households?

The world has witnessed an unparalleled increase in trade liberalization over the last few decades. These have been accompanied by increasing concerns over economic growth and distributional impacts emerging from trade agreements. An applied literature has emerged to address ex-ante effects at both macroeconomic and household levels. This article contributes to this literature by analyzing the case of Bolivia, which is about to initiate negotiations of a trade liberalization agreement with the US. We combine a computable general equilibrium model and a micro simulation approach to provide insights into whether the Bolivian economy and its households would win or lose from trade liberalization. The article indicates that Bolivia’s efforts to reach a trade agreement with the US would pay off. However, an absolute trade liberalization scheme would not be the best option for the Bolivian poor. Sector specific measures in the form of protection to sensitive commodities would ensure that expected benefits would be more evenly distributed across most Bolivian households. Negative impacts from the elimination of US trade preferences to Bolivia and failure to sign a trade agreement with the US, suggest that a strong protectionist trade policy and limited trade relations have to be avoided if economic growth and household wellbeing are to be improved.