The Free Trade Agreement between Chile and the EU : Its Potential Impact on Chile's Export Industry

Bilateral Free Trade Agreements have been used extensively by Chile to expand its exports and improve its competitive position in the world markets. It is the objective of this paper to analyze the role of trade agreements, price competitiveness, real income, per capita income differences and transport costs in Chilean export trade with the EU. To this end, Chile's most important export sectors are investigated using panel data from Chile's main trading partners in the EU over the period 1988-2002. The econometric model used in the simulations is a refined augmented gravity model. It is found that the FTA would strongly boost Chile's food related exports which face high protection in the EU market