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Trade and infrastructure: evidences from the Andean Community

  • Rojas, Gina E. Acosta
  • Calfat, Germán
  • Flôres Junior, Renato Galvão

This paper presents evidence on the key role of infrastructure in the Andean Community trade patterns. Three distinct but related gravity models of bilateral trade are used. The first model aims at identifying the importance of the Preferential Trade Agreement and adjacency on intra-regional trade, while also checking the traditional roles of economic size and distance. The second and third models also assess the evolution of the Trade Agreement and the importance of sharing a common border, but their main goal is to analyze the relevance of including infrastructure in the augmented gravity equation, testing the theoretical assumption that infrastructure endowments, by reducing trade and transport costs, reduce “distance” between bilateral partners. Indeed, if one accepts distance as a proxy for transportation costs, infrastructure development and improvement drastically modify it. Trade liberalization eliminates most of the distortions that a protectionist tariff system imposes on international business; hence transportation costs represent nowadays a considerably larger barrier to trade than in past decades. As new trade pacts are being negotiated in the Americas, borders and old agreements will lose significance; trade among countries will be nearly without restrictions, and bilateral flows will be defined in terms of costs and competitiveness. Competitiveness, however, will only be achieved by an improvement in infrastructure services at all points in the production-distribution chain.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 580.

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Date of creation: 08 Mar 2005
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Handle: RePEc:fgv:epgewp:580
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  1. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
  2. Ingram, Gregory K. & Zhi Liu, 1997. "Motorization and the provision of roads in countries and cities," Policy Research Working Paper Series 1842, The World Bank.
  3. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D., 2003. "Explaining MERCOSUR sectoral exports to the EU: The role of economic and geographical distance," International Trade 0309025, EconWPA.
  4. Antonio Estache & V. Foster & Q. Wodon, 2002. "Accounting for Poverty in Infrastructure Reform: Learning from Latin America's Experience," ULB Institutional Repository 2013/44108, ULB -- Universite Libre de Bruxelles.
  5. Paul R. Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 5-25.
  6. repec:esx:essedp:542 is not listed on IDEAS
  7. Carrillo-Tudela, Carlos & A Li, Carmen, 2004. "Trade Blocks and the Gravity Model: Evidence from Latin American Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 19, pages 667-689.
  8. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
  9. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  10. Porojan, A., 2000. "Trade Flows and Spatial Effects: The Gravity Model Revisited," Discussion Papers 0004, Exeter University, Department of Economics.
  11. Porojan, A., 2000. "Trade Flows and Spatial Effects: The Gravity Model Revisited," Discussion Papers 0004, Exeter University, Department of Economics.
  12. César Calderón & Alberto Chong, 2004. "Volume and Quality of Infrastructure and the Distribution of Income: An Empirical Investigation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(1), pages 87-106, 03.
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