(1998) use a gravity inter-regional trade model - which they compare to a derived demand
for transportation - to estimate the potential to increase exports in various local markets in
the US. Their main finding is that the volume of exports is highly elastic with respect to
transportation costs.
In our study we look at what happens to Canada’s agricultural trade from signing the
CCFTA. All studies on FTA’s in our literature review rely on country-wide gravity model
and aggregate trade data hence, ignoring the effect of FTAs on agriculture. The other set
of literature carries out more specialized analysis and concentrates on a few sub-sectors
within the agriculture sector. where as we focus on all the subsectors within the agricultural
sector. Also, we use both a gravity model, as is common for studying FTAs, and actual tariff
reduction data in the second model.
3 Data, Methodology and Results
Trade data for this study comes from the Statistics Canada database. It covers bilateral
industry-level trade data between Canada and 196 other countries including Chile. The
data is collected at 6-digit Harmonized System (HS6) industry classification. The analysis
uses data for agricultural industries (HS1-HS24) and covers 800 commodity categories for
the period from 1988 to 2005. The data on country-level macroeconomic variables such as
GDP, exchange rate, interest rate and price levels, is taken from the International Financial
Statistics database maintained by the International Monetary Fund. Geographical variables
have been obtained from the World Bank COMTRADE database.
Before the agreement came into force, Chile imposed a uniform ad-valorem tariff rate
of 11 percent for all imported products, and the main target of CCFTA is to remove these