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Abstract

This paper examines the effect of the free trade agreements signed by Costa Rica on pork trade creation and trade diversion. Pork imports to Costa Rica are explained by three main partners which are: Canada, Chile and USA, which were included in the analysis. In order to analyze the effects of FTAs on trade flows between our selected countries, especially between Chile and Costa Rica, we constructed an import demand function for Costa Rica with monthly data from 2000 to 2017. The import demand function includes pork meat price, the Costa Rican Openness index against Chile, Costa Rican GDP, population and the exchange rate. We introduced a novel methodology to determine the openness index (OI), two dimensions were considered in order to measure the degree of openness of Costa Rica against each of the three main partners. The first dimension refers to tariff level and the second one to quota level. Results indicate that Costa Rican pork imports from Chile have being increasing, thus, trade creation can be identified as a possible effect of the FTA. On the other hand, we find that as Costa Rica reduces its tariffs to the Chilean market, pork quantity imported from the USA and Canada decreases, especially from the latter. Overall, the results indicate that FTAs have been creating trade, but in the case of the Costa Rica-Chile FTA it also has been diverting trade from Canada.

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