The Effect of Trade Liberalization on Chile's Export Diversity.

Export diversification has been one of the major concerns for policymakers. In particular. those developing countries whose export structure is highly concentrated in a few primary products rather than diversified in a number of manufactures, must consider diversification policy essential in order to avoid economic problems such as resource abundance curse or the Dutch disease effect. Previous studies have hypothesized that trade liberalization through FTAs is one way to diversify export products; therefore, this paper empirically tests the hypothesis. The following analysis focuses on the Chilean experience since Chile has been highly praised for its successful export expansion and active involvement in trade liberalization. The OLS panel estimation with period fixed effect shows that Chile's FTAs have increased export diversity only in terms of product numbers, and the overall export structure has become even more concentrated during the liberalization process. In this paper, we suggest that Chile's originally highly concentrated export structure is the main reason for the concentrating, rather than diversifying, effect of the FTAs. Nevertheless, we extend our analysis to find that the diversification effect of FTAs is significant in the manufacturing sector. [ABSTRACT FROM AUTHOR]