What the Gravity Model of Trade Shows about International Trade Flows in Latin America

Abstract

The purpose of this paper is to study the main factors that drive the international trade of South American countries using an augmented gravity model of commerce. This model considers not only the volume and directions of bilateral trade, but also other factors inside and between the countries belonging to ANCOM and MERCOSUR. The main conclusion is that there are significant differences for some countries between the predicted trade flows estimated in our augmented gravity model and the actual trade flows. These differences are caused by national commercial policies, suggesting that institutional and regional arrangements do not contribute significantly to promote trade inside the region.