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Trade Diverion and Declinning Tariffs: Evidence from MERCOSUR

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  • Pabo Sanguinetti

    ()

  • Alok Bohara
  • Kishore Guatanabe

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

Paper provided by Universidad Torcuato Di Tella in its series Department of Economics Working Papers with number 003.

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Length: 35 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:udt:wpecon:003

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  1. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February.
  2. 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.
  3. Olarreaga, Marcelo & Soloaga, Isidro, 1998. "Endogenous Tariff Formation: The Case of Mercosur," CEPR Discussion Papers 1848, C.E.P.R. Discussion Papers.
  4. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  5. 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.
  6. 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.
  7. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  8. Olarreaga, Marcelo & Soloaga, Isidro & Winters, L. Alan, 1999. "What's Behind Mercosur's CET?," CEPR Discussion Papers 2310, C.E.P.R. Discussion Papers.
  9. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
  10. Bond, Eric W. & Syropoulos, Constantinos & Winters, L. Alan, 2001. "Deepening of regional integration and multilateral trade agreements," Journal of International Economics, Elsevier, vol. 53(2), pages 335-361, April.
  11. 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).
  12. repec:fth:geneec:96.07 is not listed on IDEAS
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