Analyzing the Agricultural Trade Impacts of the Canada-Chile Free Trade Agreement

may not be a good explanatory variable for agricultural trade, which in a larger extent
depends on a country’s comparative advantage. For this reason, we included three variables
to capture the country’s comparative advantage in producing agricultural products: the total
land area used in the agricultural sector, the share of agricultural land per worker, and the
amount of fertilizer used in agricultural sector (grams per square kilometer) to capture the
technology advantage. We also control for the variation in the exchange rate since it is
an important determinant of a country’s export supply and demand, given the exogenous
agricultural trade balance with each country. The set of year effects (time dummies) account
for global business cycles, effects of multilateral trade liberalization, oil shocks, etc. The
exact specification takes the following form:

ln(Xict) = β0 +β1PCi +β2FTAit + β3ERit +β4ln(Yit)+

+β₅Fi_t + β₆ALi + β₇ALWi + β₈ ln(Di) + β₉ComLangi+            (1)

+β₁₀Llockedi + β ₁₁ Islandi + β_T [YearEffects]+εi_ct,

where i denotes trading partner country, c denotes industry and t denotes time. Variable
Xi_ct is the value of Canadian exports or imports of industry c from country i at year t, Yit
and ERit are nominal GDP and nominal exchange rate of country i at year t, respectively,¹⁰
Fi_t , ALi and ALWi are the amount of fertilizer intensity, the size of cultivated land and the
size of cultivated land per worker, respectively. Di is the distance between the home country
and country i. Finally, ComLangi , Llockedi , and Islandi are binary variables that take
value of one if country i speaks either English of French, is landlocked or an island nation,
respectively.

¹⁰ The exchange rate is measured in the units of foreign currecny per one Canadian dollar.

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