Working Paper: CEPR ID: DP2179
Authors: Won Chang; L. Alan Winters
Abstract: The welfare effects of PTAs are most directly linked to changes in trade prices, i.e., the terms of trade. This paper employs a simple strategic pricing game in segmented markets to measure the effects of MERCOSUR on the pricing of 'non-member' exports to the region. Working with detailed data on unit values and tariffs we find that the creation of MERCOSUR is associated with significant declines in the prices of non-members' exports to the region and that these can be largely explained by tariff preferences offered to its partners. We focus on the Brazilian market (by far the largest in MERCOSUR) and show that non-members' export prices to Brazil respond to both m.f.n. and preferential tariffs, the latter inducing reductions in non-member export prices.
Keywords: regional integration; terms of trade; imperfect competition; Mercosur
JEL Codes: F13; F15; C33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mercosur's preferential tariffs (F15) | decline in prices of nonmembers' exports to Brazil (F14) |
| preferential tariff reductions for Argentinean firms (F13) | lower post-tariff prices (P22) |
| lower post-tariff prices (P22) | competitive pressure on nonmember firms to reduce their prices (L11) |
| preferential tariffs (F13) | nonmember export prices (F14) |
| MFN tariffs (F13) | nonmember export prices (F14) |