Working Paper: NBER ID: w11745
Authors: Irene Brambilla
Abstract: This paper looks empirically into the behavior of multinational firms in international oligopolistic markets with trade balance constraints. I show how a particular form of non-tariff barrier applied at the firm level can lead to an increase in trade flows in the presence of intra-firm strategic trade. In my application, I estimate a model of demand, supply and trade policy in the automobile sector in Argentina and Brazil during 1996-1999. \nI measure the economic impact of a trade balance constraint that was in effect during that period and I compute predicted economic outcomes for the full adoption of a customs union, as has been agreed as part of the Mercosur negotiations, separating the sometimes opposing impacts of the removal of non-tariff barriers and the adoption of a common external tariff. Results show that the elimination of non-tariff barriers dominates the leveling of tariffs. Imports from outside of Mercosur increase under the new regime even though tariffs against these goods become more discriminatory, and exports from Brazil to Argentina decrease once the trade balance constraint is removed.
Keywords: No keywords provided
JEL Codes: F12; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Removal of nontariff barriers (NTBs) (F13) | Increase in trade flows (F19) |
| Removal of nontariff barriers (NTBs) (F13) | Increase in imports from outside Mercosur (F10) |
| Removal of nontariff barriers (NTBs) dominates leveling of tariffs (F13) | Increase in imports from non-Mercosur countries (F19) |
| Removal of trade balance constraint (F14) | Decrease in exports from Brazil to Argentina (F14) |
| Trade policy changes (F13) | Shift in trade dynamics (F19) |