The EU-Chile free trade agreement: A general-equilibrium, ex-post assessment

SÉBASTIEN JEAN; NANNO MULDER; MARIA PRISCILA RAMOS

Guayaquil

Encuentro; IV Encuentro Regional sobre Modelos de Equilibrio General Computable (EGC); 2012

BID-CEPAL

This paper proposes an evaluation of the economic impact of the EU‐Chile FreeTrade Agreement, in force since 2003, based on a computable general equilibrium (CGE) model of the Chilean economy. The method, inspired by structural decomposition methods, consists of double calibration of the model, to account for interactions between the agreement´s impact and structural change in the Chilean economy. Trade flows are modelled at the detailed product level (six digit level classification) and elasticities of substitution are sourced from econometric estimates of EU Chile trade based on a theoretical set‐up consistent with the one used here. The Agreement has triggered a small aggregate economic gain for the Chilean economy, benefiting mainly unskilled labour. Moving to a situation of unrestricted bilateral free trade would make little difference, with gains  concentrated in the meat sector.