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Exports from the Brazilian automotive sector to the Southern Common Market: Trade diversion or cost reduction?

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  • Azevedo, André Filipe Zago de
  • Massuquetti, Angélica

Abstract

The automotive sector is one of the sectors in which trade between mercosur countries has grown most strongly. This article examines the possibility that trade diversion occurred in that sector during the period 1991-2010, assuming that product costs fell as a result of market expansion. The analysis is based on the concepts of “cost reduction” and “trade suppression” coined by Corden (1972), which capture the effects of economies of scale. Indices of regional orientation and revealed comparative advantages are used in combination to assess whether the trade bloc is evolving in line with comparative advantages. The results suggest efficiency gains for automotive-sector products, exports of which from Brazil to mercosur grew more vigorously because the expanded and relatively protected market made it possible to exploit the economies of scale that are characteristic of the automotive industry.

Suggested Citation

  • Azevedo, André Filipe Zago de & Massuquetti, Angélica, 2015. "Exports from the Brazilian automotive sector to the Southern Common Market: Trade diversion or cost reduction?," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    • Handle: RePEc:ecr:col070:38837
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    1. Corden, W M, 1972. "Economies of Scale and Customs Union Theory," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 465-475, May-June.
    2. Yeats,Alexander James, 1997. "Does Mercosur's trade performance raise concerns about the effects of regional trade arrangements?," Policy Research Working Paper Series 1729, The World Bank.
    3. Arvind Panagariya, 1999. "The Regionalism Debate: An Overview," The World Economy, Wiley Blackwell, vol. 22(4), pages 477-512, June.
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