Trade and infrastructure in the Andean Community

This paper examines the key role of infrastructure in Andean Community trade patterns, using three gravity models. The first identifies the importance of preferential trade agreements and of geographical adjacency. The second and third models encompass these aspects while focusing on the inclusion of infrastructure in the gravity equation, testing the assumption that infrastructure endowments reduce "distance" (in terms of transport costs); between partners. Under the new trade arrangements, borders and previous agreements will lose significance, trade will be virtually free and bilateral flows will be defined in terms of costs and competitiveness. Competitiveness, however, can be achieved only by means of an improvement in infrastructure at all points in the production-distribution chain.