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

Variable PCi is a partner country dummy variable that takes the value of one when
partner country is Chile to control for possible pre-FTA differences in trade patterns relative
to other countries, and FTAi_t is an interaction of PCi and a time-specific dummy variable
for Canada-Chile FTA. Coefficient β₁ measures how much greater is Canadian imports from
(exports to) Chile relative to imports from (exports to) the average Canadian trading part-
ner. Coefficient β₂ is of key importance in the analysis: it measures the trade effect of the
Canada-Chile FTA on the (log) level of Canadian exports to and imports from Chile. A
Positive and significant β₂ would indicate a trade-creating effect of the FTA for Canadian
agricultural sector, while insignificant values would suggest that the FTA creates no com-
petitive advantage for Canadian agricultural exporters to Chile relative to other countries.

Specification (1) is estimated with OLS where observations are clustered by country-
industry to obtain a robust covariance matrix adjusting for within-cluster correlation. Esti-
mation results for equation (1) are presented in Table 3 for Canadian imports and in Table
5 for exports. We first focus on the results for Canadian imports. In the basic specification
without additional controls (column 1), the coefficient estimate for β₁ is positive, which im-
plies that Canada already exported 39 percent more to Chile than to the average country
during the period 1988-1997.¹¹ Adding the FTAvariable to the basic specification suggests
that this effect nearly doubled as a result of the FTA: the coefficient β₂ = 0.30 implies that
exports of the average Chilean agricultural sector to Canada increased by 35 percent as a
result of the agreement.

Including other controls in specifications (3)-(6) we observe that most coefficients have

¹¹ exp(0.33) - 1 ' 0.39

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