Analysis On The Effects Of Chile's Free Trade Agreements On Trade Using Gravity Trade Equation

This thesis applies gravity trade model to analyze the effect that free trade agreements has had on the bilateral trade flows between Chile and its 45 partner countries which it has an acting free trade agreement to this day,for a period of 16 years.The data is used from databases of the International Monetary Fund,International Trade Center and the World Bank.The results shown that,for this case,free trade agreement has a negative impact on bilateral trade,contrary to the researched literature by a small amount(0.17%),this may be to reasons beyond the scope of this study such as the sub-prime crisis or other non-quantifiable barriers that hinder trade between Chile and the partner countries.On the other hand,GDP and population has a positive effect on trade,while geographical distance has a negative effect on trade,as expected from previous research.Exchange rate has a small but significant positive effect,this is in line with what the available literature has researched about the topic.The analysis of trade potential,and by applying speed of convergence,it is estimated that Chile still has trade potential with developed areas and countries,such as Europe,Canada,and some developing countries of Asia.This analysis shows that the full potential of free trade agreements have not been achieved yet and needs improvement.