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



the effect of tariff cuts on trade flows. The gravity model is a well received robust model
for predicting trade patterns across countries. It explains bilateral trade flows that are
based on the distance between the trading partners, and demand measured by economic
mass (GDP, GDP per capita etc.). The model can include an array of variables to account
for other determinants of trade like exchange rates, common language, connecting borders,
treaties and other trade policies. We find a large and positive effect of CCFTA on Chilean
agricultural exports to Canada. Controlling for the differences in comparative advantage
in producing agricultural products, like differences in incomes, exchange rates and other
characteristics, we estimate that approximately one-half of a 90 percent increase in Chilean
exports to Canada can be attributed to trade preferences that the country received under
the agreement. On the other hand, we find no effect of the agreement on Canadian exports
to Chile. To account for the more prolonged phase out period for Chilean tariff reductions,
we estimate the elasticity of Canadian and Chilean bilateral trade volumes with respect
to tariff changes proposed by CCFTA. The results from this section further support the
finding that it was mostly Chilean exporters who benefited from CCFTA tariff cuts, while
Canadian agricultural producers did not respond to more export opportunities created by
the agreement.

The main contribution of this paper is to draw attention to the impact of FTA on Cana-
dian agriculture trade. Most empirical papers that have studied the trade impact of FTAs
rely on country-wide gravity models and aggregate trade data. This provides overall trade
effects of an FTA, and can hide negative effects of FTAs on some sectors (like agriculture)
where a country may have comparative disadvantage. Our approach is industry-focused and



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