TRADE AGREEMENT AND TRADE SPECIALIZATION BETWEEN COLOMBIA AND THE EU

Abstract

The study analyses the relevance of the trade agreement between Colombia and the European Union as a policy that promotes trade between them (export and import flows) and, subsequently, establishes its effectiveness in reducing the trade deficit of the former. Furthermore, the paper analyses the determinants of trade flows between the parties, emphasizing the effect of factor endowment on their bilateral trade. We use a panel data set from 2005 to 2019, wherein the export and import flows between Colombia and the countries of the European Union are considered. The findings indicate that the trade agreement between the two parties has deepened the Colombian trade deficit. Additionally, it is established that the parties share an inter-industry trade pattern based on their factor endowment. Consequently, the Colombian government should consider these findings to reorient its trade policy towards those European Union countries that have an opposite factor endowment.