Trade Blocks and the Gravity Model: Evidence from Latin American Countries

We apply the gravity model to examine the effects of the Andean Community and Mercosur on both intra-regional and intra-industrial trade in the period 1980-1997. After accounting for size and distance effects, the Andean Community preferential trade agreements had a significant effect on both the differentiated and reference products, in particular capital intensive goods. In contrast, Mercosur preferential trade agreements only had a positive effect on the capital intensive subcategory of the reference products.