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Trade diversion and declining tariffs: evidence from Mercosur

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  • Bohara, Alok K.
  • Gawande, Kishore
  • Sanguinetti, Pablo

Abstract

This paper empirically examines the alternative posed by Richardson (1993) to the traditional view that trade integration may exacerbate inefficiencies. Richardson’s hypothesis boldly predicts that trade diversion (and trade creation) may actually cause tariffs to decline! The hypothesis is fundamentally attributable to the presence of a political component in the governments’ objective functions. A cross-sectionally rich data set on trade and tariffs from the Mercosur-pact countries, primarily Argentina, is used. The evidence yields surprising conclusions about the validity of endogenous tariff determination in models of trade integration.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 64 (2004)
Issue (Month): 1 (October)
Pages: 65-88

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Handle: RePEc:eee:inecon:v:64:y:2004:i:1:p:65-88

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Pravin Krishna, . "Regionalism and Multilaterialism: A Political Economy Approach," Working Papers 96-5, Brown University, Department of Economics.
  2. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  3. Calfat, Germán & Ganame, Maria Cecilia & Flôres Junior, Renato Galvão, 2000. "Endogenous Protection in Mercosul: An Empirical Analysis," Economics Working Papers (Ensaios Economicos da EPGE) 407, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Olarreaga, Marcelo & Soloaga, Isidro, 1998. "Endogenous Tariff Formation: The Case of Mercosur," World Bank Economic Review, World Bank Group, vol. 12(2), pages 297-320, May.
  5. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
  6. Olarreaga, Marcelo & Soloaga, Isidro & Winters, L. Alan, 1999. "What's Behind Mercosur's CET?," CEPR Discussion Papers 2310, C.E.P.R. Discussion Papers.
  7. Richard E. Caves, 1976. "Economic Models of Political Choice: Canada's Tariff Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 9(2), pages 278-300, May.
  8. Won Chang & Winters, L. Alan, 1999. "How regional blocs affect excluded countries - the price effects of MERCOSUR," Policy Research Working Paper Series 2157, The World Bank.
  9. Bond, Eric W & Syropoulos, Costas & Winters, L. Alan, 2000. "Deepening of Regional Integration and Multilateral Trade Agreements," CEPR Discussion Papers 2480, C.E.P.R. Discussion Papers.
  10. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  11. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
  12. Sam Peltzman, 1976. "Toward a More General Theory of Regulation," NBER Working Papers 0133, National Bureau of Economic Research, Inc.
  13. repec:fth:geneec:96.07 is not listed on IDEAS
  14. Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004. "A strategic and welfare theoretic analysis of free trade areas," Journal of International Economics, Elsevier, vol. 64(1), pages 1-27, October.
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