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THE WORLD BANK ECONOMIC REVIEW, VOL. 16, NO. 1, 49-79
© 2002 International Bank for Reconstruction and Development / The World Bank

Article

Trade Policy Options for Chile: The Importance of Market Access

Glenn W. Harrison, Thomas F. Rutherford and David G. Tarr

Glenn W. Harrison is Dewey H. Johnson Professor of Economics at the University of South Carolina
Thomas F. Rutherford is Associate Professor in the Department of Economics at the University of Colorado
David G. Tarr is Lead Economist in the Development Economics Research Group at the World Bank; his e-mail address is dtarr{at}worldbank.org.

Abstract

This article uses a multisector, multicountry, computable general equilibrium model to examine Chile's strategy of "additive regionalism"—negotiating bilateral free trade agreements with all of its significant trading partners. Taking Chile's regional arrangements bilaterally, only its agreements with Northern partners provide sufficient market access to overcome trade diversion costs. Due to preferential market access, however, additive regionalism is likely to provide Chile with gains that are many multiples of the static welfare gains from unilateral free trade. At least one partner country loses from each of the regional agreements considered, and excluded countries as a group always lose. Gains to the world from global free trade are estimated to be vastly larger than gains from any of the regional arrangements.


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