IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1783.html
   My bibliography  Save this paper

Trade policy options for Chile : a quantitative evaluation

Author

Listed:
  • Harrison, Glenn W.
  • Rutherford, Thomas F.
  • Tarr, David G.

Abstract

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.

Suggested Citation

  • Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 1997. "Trade policy options for Chile : a quantitative evaluation," Policy Research Working Paper Series 1783, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1783
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2005/05/06/000012009_20050506152221/Rendered/PDF/WP1783.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Wooton, Ian, 1986. "Preferential trading agreements: An investigation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 81-97, August.
    2. Riedel, James, 1988. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong," Economic Journal, Royal Economic Society, vol. 98(389), pages 138-148, March.
    3. 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.
    4. -, 1995. "Trade liberalization in the Western Hemisphere," Coediciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1389 edited by Idb.
    5. 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 357-362, May.
    6. 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..
    7. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2017. "Quantifying The Uruguay Round," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 16, pages 363-388, World Scientific Publishing Co. Pte. Ltd..
    8. 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.
    9. 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 704-714, September.
    10. 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.
    11. 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.
    12. 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 288-294, May.
    13. 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..
    14. 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 1411-1414, November.
    15. 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.
    16. Valdes, A, 1996. "Surveillance of Agricultural Price and Trade Policy in Latin America during Major Policy Reform," World Bank - Discussion Papers 349, World Bank.
    17. 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.
    18. Bond,Eric W., 1997. "Using tariff indices to evaluate preferential trading arrangements : an application to Chile," Policy Research Working Paper Series 1751, The World Bank.
    19. 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 961-968, November.
    20. 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.
    21. 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 785-797, September.
    22. Marcus H. Miller & John E. Spencer, 1977. "The Static Economic Effects of the UK joining the EEC: A General Equilibrium Approach," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(1), pages 71-93.
    23. Shah, Anwar & Whalley, John, 1991. "Tax Incidence Analysis of Developing Countries: An Alternative View," The World Bank Economic Review, World Bank, vol. 5(3), pages 535-552, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Silvia Laens & Inés Terra, 2003. "Integration of the Americas: Welfare Effects and Options for the MERCOSUR," Documentos de Trabajo (working papers) 0903, Department of Economics - dECON.
    2. Ana Sanjuan Lopez & Marie-Luise Rau & Geert Woltjer, 2019. "Exploring alternative approaches to estimate the impact of non-tariff measures and further implementation in simulation models," JRC Research Reports JRC113883, Joint Research Centre.
    3. Li, Jennifer Chung-I, 2003. "A Dynamic Recursive Analysis of A Carbon Tax Including Local Health Feedback," Conference papers 331085, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Mabel Cabezas, 2003. "Tratado de Libre Comercio Entre Chile y Estados Unidos: Revisión de Estudios que Cuantifican su Impacto," Working Papers Central Bank of Chile 239, Central Bank of Chile.
    5. Kimakova, Alena & Rajabiun, Reza, 1999. "An Applied General Equilibrium Analysis of EU Integration for Hungary and Slovakia," Transition Economics Series 9, Institute for Advanced Studies.
    6. Klaus Schmidt-Hebbel, 2006. "Chile's Economic Growth," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 5-48.
    7. Bond,Eric W., 1997. "Using tariff indices to evaluate preferential trading arrangements : an application to Chile," Policy Research Working Paper Series 1751, The World Bank.
    8. Alfie Antonio Ulloa Urrutia, 2003. "Chile's Trade Policy and the Chile-United States Free Trade Agreement," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 13.
    9. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 2001. "Chile's regional arrangements and the Free Trade Agreement of the Americas : the importance of market access," Policy Research Working Paper Series 2634, The World Bank.
    10. Elbehri, Aziz & MacDonald, Steve, 2003. "Transgenic Cotton and Crop Productivity: A General Equilibrium Analysis for West and Central Africa," Conference papers 331153, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Glenn W Harrison & Thomas F Rutherford & David G Tarr, 1997. "Opciones de Política Comercial para Chile: Una Evaluación Cuantitativa," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 34(102), pages 101-137.
    12. Romulo Chumacero & Rodrigo Fuentes, 2004. "Chile's Free Trade Deals with the EU and the US: A Big Deal?," Econometric Society 2004 Far Eastern Meetings 661, Econometric Society.
    13. Balistreri, Edward J. & Tarr, David G., 2020. "Comparison of deep integration in the Melitz, Krugman and Armington models: The case of The Philippines in RCEP," Economic Modelling, Elsevier, vol. 85(C), pages 255-271.
    14. Rómulo A. Chumacero & Rodrigo Fuentes & Klaus Schmidt-Hebbel, 2004. "Chile’s Free Trade Agreements: How Big is The Deal?," Working Papers Central Bank of Chile 264, Central Bank of Chile.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Glenn W Harrison & Thomas F Rutherford & David G Tarr, 1997. "Opciones de Política Comercial para Chile: Una Evaluación Cuantitativa," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 34(102), pages 101-137.
    2. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2005. "Chile´s Regional Arrangements: The Importance of Market Access and Lowering the Tariff to Six Percent," Central Banking, Analysis, and Economic Policies Book Series, in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.),General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 9, pages 303-344, Central Bank of Chile.
    3. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 2001. "Chile's regional arrangements and the Free Trade Agreement of the Americas : the importance of market access," Policy Research Working Paper Series 2634, The World Bank.
    4. Rutherford, Thomas F. & Tarr, David G., 1998. "Trade liberalization and endogenous growth in a small open economy : a quantitative assessment," Policy Research Working Paper Series 1970, The World Bank.
    5. McDaniel, Christine A. & Balistreri, Edward J., 2002. "A Discussion on Armington Trade Substitution Elasticities," Working Papers 15856, United States International Trade Commission, Office of Economics.
    6. Thomas F. Rutherford & David G. Tarr, 2017. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 17, pages 389-414, World Scientific Publishing Co. Pte. Ltd..
    7. Miguel, Carlos de & O'Ryan, Raúl & Pereira, Mauricio & Carriquiri, Bruno, 2009. "Energy shocks, fiscal policy and CO2 emissions in Chile," Conference papers 331817, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Cassoni, Adriana & Flores, Manuel, 2008. "Methodological shortcomings in estimating Armington elasticities," Conference papers 331813, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Miles Kenneth LIGHT & Thomas Fox RUTHERFORD, 2003. "Free Trade Area of the Americas. An impact Assessment for Colombia," Archivos de Economía 2744, Departamento Nacional de Planeación.
    10. Mark D. Partridge & Dan S. Rickman, 1998. "Regional Computable General Equilibrium Modeling: A Survey and Critical Appraisal," International Regional Science Review, , vol. 21(3), pages 205-248, December.
    11. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2017. "Rules Of Thumb For Evaluating Preferential Trading Arrangements: Evidence From Cge Assessments," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 7, pages 145-153, World Scientific Publishing Co. Pte. Ltd..
    12. Glenn W. Harrison & Thomas F. Rutherford & Tarr,David, 2003. "Rules of thumb for evaluating preferential trading arrangements : evidence from computable general equilibrium assessments," Policy Research Working Paper Series 3149, The World Bank.
    13. Konan, Denise Eby & Maskus, Keith E., 2000. "Joint trade liberalization and tax reform in a small open economy: the case of Egypt," Journal of Development Economics, Elsevier, vol. 61(2), pages 365-392, April.
    14. repec:lic:licosd:8900 is not listed on IDEAS
    15. Thomas F. Rutherford & E. Elisabet Rutstrom & David Tarr, 2014. "Morocco's free trade agreement with the EU: A quantitative assessment," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 17, pages 405-437, World Scientific Publishing Co. Pte. Ltd..
    16. 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..
    17. Hillberry, Russell & Hummels, David, 2013. "Trade Elasticity Parameters for a Computable General Equilibrium Model," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1213-1269, Elsevier.
    18. Rutstrom, E. Elisabet & Redmond, Willie J., 1997. "A quantification of lobbying benefits with an application to the common agricultural policy," Journal of Policy Modeling, Elsevier, vol. 19(6), pages 635-659, December.
    19. Ha, Soo Jung & Hewings, Geoffrey & McGregor, Peter G & Swales, J Kim & Turner, Karen, 2010. "Econometric estimation of Armington import elasticities and their system-wide impact in a regional CGE model of the Illinois economy," Stirling Economics Discussion Papers 2010-19, University of Stirling, Division of Economics.
    20. Yizhou Zhang & Geoffrey J.D. Hewings, 2019. "Fiscal Decentralization – A Cautious Tale," Regional Science Policy & Practice, Wiley Blackwell, vol. 11(1), pages 173-187, March.
    21. Jensen, Jesper & Tarr, David, 2002. "Trade, foreign exchange, and energy policies in the Islamic Republic of Iran : reform agenda, economic implications, and impact on the poor," Policy Research Working Paper Series 2768, The World Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1783. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.