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 distance and competitiveness effects, the Andean Community preferential trade agreements had a significant effect on the reference products but only a marginal effect on the differentiated products, in particular capital-intensive goods. Mercosur preferential trade agreements had a significant positive effect only on the capital-intensive subcategory of the reference products.