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The Impact of MERCOSUR on Trade of Brazilian States

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  • Siroën, Jean-Marc
  • Yücer, Aycil

Abstract

We consider the impact of MERCOSUR on trade among Brazilian states and on trade by Brazilian states with MERCOSUR and the rest of the world. We use a theoretically founded gravity model to shed light on MERCOSUR’s possible creation and diversion effects as well as its “preference erosion” effect on trade among Brazilian states. Using data on interstate trade over a 4-year period, including 1 year prior to the MERCOSUR period (1991), we deliver empirical evidence at state level with a focus on the impact of MERCOSUR which can vary across Brazilian regions. We show that MERCOSUR increased Brazilian states’ trade with member countries, but had no effect on either interstate trade or Brazilian states’ trade with third countries. The paper finds that MERCOSUR’s impact varies across Brazilian regions and that Center West region did not benefit from the integration to MERCOSUR. We use an estimation method dealing better with the traditional issue of zero trade values and heteroskedasticity than ordinary least squares does.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/7077.

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Date of creation: 2012
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Publication status: Published in Review of World Economics, 2012, Vol. 148, no. 3. pp. 553-582.Length: 29 pages
Handle: RePEc:dau:papers:123456789/7077

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Keywords: Accords commerciaux régionaux; Modèles de gravité; Détournement de commerce; Création de commerce; Erosion des préférences; Preference Erosion; Trade Creation; Trade Diversion; Gravity Model; MERCOSUR; Regional Trade Agreements;

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