The impact of free trade agreements in national markets: Evidence from the telecommunications sector in Latin America

In the 2000s, the United States signed free trade agreements (FTAs) with several Latin American countries. These treaties were among the first to contain specific chapters on telecommunications, which seek to promote competition and foreign investment in this market. This paper uses a difference-in-differences econometric strategy to evaluate the impact of these exogenous reforms in the telecommunications industry. The results show that the FTAs prompted an estimated reduction of 45.5% in average revenue per user in the subscribing countries, and that this competitive effect was mainly due to the decrease of 34% in the prices of mobile calls. FTAs are not found to have significant impacts on fixed and mobile phone penetration, nor on private investment in these services, reflecting their lower profitability after the strengthening of competition.