Chile put into place broad free trade agreements (FTAs) with its two major trading partners: the EU (effective 2003) and the US (effective 2004). This paper quanti- fies their economic effects for the Chilean economy, stemming from the conventional trade components (lower tariffs and higher market access) and other aspects of the lat- ter broad FTAs, including improved intellectual property rights, factor productivity gains, and their fiscal consequences. The paper also considers that the country risk premium may decline and aggregate investment may rise in response to the institutional stability and policy credibility enhanced by the FTAs. Simulation results are reported for steady states and dynamic transition paths, based on a three-sector dynamic general equilibrium model for an open economy inhabited by infinitely-lived representative agents. The model is calibrated to the Chilean economy and the actual features of both trade agreements. The reported effects of FTAs on resource allocations, relative prices, expenditure composition, output, and welfare are generally small due to Chile's high initial trade openness; aggregate output and consumption do not exceed 1% in any given period. On impact, the largest gains come from a lower risk premium that leads to a tem- porary consumption and investment boom, which is reverted in the long run as a result of larger net foreign liabilities. In steady state, the gains from improved factor productivity dominate all other effects
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Find related papers by JEL classification: F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations O54 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: