Trade Potential in Southern Cone Countries

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Mar 2018
A trade gravity model is used to calculate the bilateral export potential of Southern Cone countries (Argentina, Brazil, Chile, Paraguay, and Uruguay) and identify patterns of weak performance across destinations and productive sectors. After controlling for key trade fundamentals and country and time effects, we find that exports to large advanced economies like the United States and the European Union fall short of expected levels. Potential trade with the rest of Latin America shows a high degree of heterogeneity across sectors and countries. Exports within the Southern Cone are generally above the predicted value, but there is still space for higher flows, particularly regarding Chile-MERCOSUR relations.