Trade policy options for Chile : a quantitative evaluation
Chile is currently evaluating a wide range of possible trade policies. Using a global computable general equilibrium model, the authors examine a range of trade policy and complementary tax policy options for Chile. They focus on Chile's principal preferential trade policy options: a free-trade area with MERCOSUR, a customs union with MERCOSUR, and a free trade area with NAFTA. They also examine such options as complementary tariff reduction with nonpartner countries in combination with implementing the free trade area options; unilateral or global trade liberalization; and the optimum unilateral tariff. Their principal policy conclusions: lowering Chile's tariffs preferentially or multilaterally leads to only small gains as Chile starts with a rather efficient external trade regime, uniform tariffs of 11 percent. Largely because of its efficient uniform tariff, preferential tariff reduction will reduce Chilean welfare through trade diversion, unless Chile can improve its access in the markets of partner countries. NAFTA offers enough access to benefit Chile; MERCOSUR does not, once the trade diversion costs of MERCOSUR are taken into account. Under their preferred-elasticity scenario, Chile can convert the MERCOSUR agreement from a loss to a gain if it lowers its external tariff to between 6 and 8 percent. Doing so will also increase the gains from a potential agreement with NAFTA. Chile's current value-added tax imposes distortionary costs because collection rates are nor uniform. Chile will gain if it can collect the VAT more uniformly. Tariff reductions from trade reform will require an increase in domestic taxes, so greater uniformity in domestic taxes (less distortion in replacement taxes) will maximize the benefits from trade reform. Welfare will be improved by moving toward unifromity in the VAT and lowering the Chilean tariff to between 6 and 8 percent. This model ignores dynamic gains from trade liberalization, the result of importing either a greater variety of products or more technologically advanced products.
|Date of creation:||30 Jun 1997|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
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.:
- Shah, Anwar & Whalley, John, 1991. "Tax Incidence Analysis of Developing Countries: An Alternative View," World Bank Economic Review, World Bank Group, vol. 5(3), pages 535-52, September.
- Bond, Eric, 1997. "Using tariff indices to evaluate preferential trading arrangements : an application to Chile," Policy Research Working Paper Series 1751, The World Bank.
- Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2014.
"Trade Reform in the Partially Liberalized Economy of Turkey,"
World Scientific Book Chapters,
in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 5, pages 95-121
World Scientific Publishing Co. Pte. Ltd..
- Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1993. "Trade Reform in the Partially Liberalized Economy of Turkey," World Bank Economic Review, World Bank Group, vol. 7(2), pages 191-217, May.
- Wonnacott, Paul & Wonnacott, Ronald, 1981. "Is Unilateral Tariff Reduction Preferable to a Customs Union? The Curious Case of the Missing Foreign Tariffs," American Economic Review, American Economic Association, vol. 71(4), pages 704-14, September.
- Reinert, Kenneth A. & Roland-Holst, David W., 1992. "Armington elasticities for United States manufacturing sectors," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 631-639, October.
- Athukorala, Premachandra & Riedel, James, 1994. "Demand and Supply Factors in the Determination of NIE Exports: A Simultaneous Error-Correction Model for Hong Kong: A Comment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1411-14, November.
- Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 1997.
"Economic implications for Turkey of a Customs Union with the European Union,"
European Economic Review,
Elsevier, vol. 41(3-5), pages 861-870, April.
- Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2014. "Economic implications for Turkey of a Customs Union with the European Union," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 16, pages 395-404 World Scientific Publishing Co. Pte. Ltd..
- Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 1996. "Economic implications for Turkey of a customs union with the European Union," Policy Research Working Paper Series 1599, The World Bank.
- Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1997. "Quantifying the Uruguay Round," Economic Journal, Royal Economic Society, vol. 107(444), pages 1405-30, September.
- Riedel, James, 1988. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong," Economic Journal, Royal Economic Society, vol. 98(389), pages 138-48, March.
- Harrison, Glenn W & Vinod, H D, 1992. "The Sensitivity Analysis of Applied General Equilibrium Models: Completely Randomized Factorial Sampling Designs," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 357-62, May.
- Harrison, Glenn W & Rutherford, Thomas F & Wooton, Ian, 1989. "The Economic Impact of the European Community," American Economic Review, American Economic Association, vol. 79(2), pages 288-94, May.
- Clinton R. Shiells & Kenneth A. Reinert, 1993. "Armington Models and Terms-of-Trade Effects: Some Econometric Evidence for North America," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 299-316, May.
- Juan Eduardo Coeymans & Felipe Larraín, 1994. "Efectos de un Acuerdo de Libre Comercio entre Chile y Estados Unidos: Un Enfoque de Equilibrio General," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 31(94), pages 357-400.
- Marcus H. Miller & John E. Spencer, 1977. "The Static Economic Effects of the UK joining the EEC: A General Equilibrium Approach," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 71-93.
- Hammond, Peter J & Sempere, Jaime, 1995. "Limits to the Potential Gains from Economic Integration and Other Supply Side Policies," Economic Journal, Royal Economic Society, vol. 105(432), pages 1180-1204, September.
- Alberto Valdés, 1995. "Joining an Existing Regional Trade Agreement from the Perspective of a Small Open Economy: Chile's Accession to NAFTA and MERCOSUR," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(5), pages 1292-1297.
- Harrison, Glenn W. & Jones, Richard & Kimbell, Larry J. & Wigle, Randal, 1993. "How robust is applied general equilibrium analysis?," Journal of Policy Modeling, Elsevier, vol. 15(1), pages 99-115, February.
- Valdes, A, 1996. "Surveillance of Agricultural Price and Trade Policy in Latin America during Major Policy Reform," World Bank - Discussion Papers 349, World Bank.
- Harrison, Glenn W & Rutherford, Thomas F & Wooton, Ian, 1991. "An Empirical Database for a General Equilibrium Model of the European Communities," Empirical Economics, Springer, vol. 16(1), pages 95-120.
- Wooton, Ian, 1986. "Preferential trading agreements: An investigation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 81-97, August.
- Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-97, September.
- Glenn W. Harrison & Thomas F. Rutherford & Ian Wooton, 1993. "An Alternative Welfare Decomposition for Customs Unions," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 961-68, November.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1783. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.