An Econometric Analysis of Trade Creation and Trade Diversion in Mercosur: the Case of Paraguay
AbstractThis paper analyzes the effects of Mercosur on Paraguayan import flows using detailed trade values to identify patterns of trade creation and trade diversion at aggregate and disaggregate commodity levels. It is well know that the share of foreign trade with respect to GDP is larger for small countries. Consequently, the effects of a trade agreement between large and small countries are likely to be larger in small economies. I use a variant of the gravity model employing a reparameterization of the difference-in-difference estimator to analyze import flows over time from member and non-member countries. Additionally, I explicitly include zero trade flows and implement a Heckman sample selection correction along with country fixed effects. I find the creation of Mercosur has increased average regional imports by 266% since 1995, which is evidence of trade creation. The greatest import expansions have been in Beverages and Tobacco and Animal and vegetable oils & fats. Finally, I do not find statistically significant evidence of trade diversion in any of the ten commodity categories.
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Bibliographic InfoPaper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 126864.
Date of creation: 2012
Date of revision:
International Relations/Trade; Research Methods/ Statistical Methods;
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