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A Customs Union with Multinational Firms: The Automobile Market in Argentina and Brazil

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  • Brambilla, Irene

    (Yale U)

Abstract

In this paper, I estimate the economic effects of adopting a customs union in the context of an oligopolistic market with multinational firms, tariffs and non-tariff barriers. Specifically, I estimate a model of demand and supply for cars in Argentina and Brazil and I look at the consequences of adopting MERCOSUR, a regional trade agreement to be fully implemented in 2006. I develop a model of the strategic behavior of multinational firms in the presence of active trade intervention in the form of tariffs and non-tariff barriers and I show how a particular form of trade balance restriction applied at the firm level can lead to an increase in trade flows in the presence of intra-firm strategic trade. I propose a minimum-distance estimator that allows for the joint estimation of production costs and shadow costs of the NTBs without making functional form assumptions on the cost side. To explore the effects of the trade policy, I derive equilibrium conditions for firms under the changed policy parameters and I use the estimates of demand and costs to predict the outcome in these counterfactual equilibria. I decompose the effects on prices, volumes of trade, profits and consumer welfare into the separate impacts of two simultaneous changes in policy: the removal of NTBs and the adoption of a common external tariff.

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Bibliographic Info

Paper provided by Yale University, Department of Economics in its series Working Papers with number 4.

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Date of creation: Oct 2005
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Handle: RePEc:ecl:yaleco:4

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  1. Steven Berry & Oliver Linton & Ariel Pakes, 2002. "Limit Theorems for Estimating the Parameters of Differentiated Product Demand Systems," Cowles Foundation Discussion Papers 1372, Cowles Foundation for Research in Economics, Yale University.
  2. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
  3. Goldberg, Pinelopi Koujianou & Verboven, Frank, 1998. "The Evolution of Price Dispersion in the European Car Market," CEPR Discussion Papers 2029, C.E.P.R. Discussion Papers.
  4. Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-84, July.
  5. Robert C. Feenstra, 1984. "Voluntary Export Restraint in U.S. Autos, 1980-81: Quality, Employment, and Welfare Effects," NBER Chapters, in: The Structure and Evolution of Recent U.S. Trade Policy, pages 35-66 National Bureau of Economic Research, Inc.
  6. repec:cdl:compol:217 is not listed on IDEAS
  7. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  8. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
  9. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
  10. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  11. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, Fall.
  12. Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc.
  13. Feenstra, Robert C, 1988. "Quality Change under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 131-46, February.
  14. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  15. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
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Cited by:
  1. Catherine Thomas, 2011. "Too Many Products: Decentralized Decision Making in Multinational Firms," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 280-306, February.
  2. Jorge Tovar, 2004. "The Welfare Effects Of Trade Liberalization: Evidence From The Car Industry In Colombia," DOCUMENTOS CEDE 003638, UNIVERSIDAD DE LOS ANDES-CEDE.

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