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Trade diversion and declining tariffs: evidence from Mercosur

  • Bohara, Alok K.
  • Gawande, Kishore
  • Sanguinetti, Pablo

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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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 64 (2004)
Issue (Month): 1 (October)
Pages: 65-88

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Handle: RePEc:eee:inecon:v:64:y:2004:i:1:p:65-88
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Olarreaga, Marcelo & Soloaga, Isidro & Winters, L. Alan, 1999. "What's Behind Mercosur's CET?," CEPR Discussion Papers 2310, C.E.P.R. Discussion Papers.
  2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  3. Bond, Eric W & Syropoulos, Costas & Winters, L. Alan, 1996. "Deepening of Regional Integration and Multilateral Trade Agreements," CEPR Discussion Papers 1317, C.E.P.R. Discussion Papers.
  4. Olarreaga, Marcelo & Soloaga, Isidro, 1998. "Endogenous Tariff Formation: The Case of Mercosur," World Bank Economic Review, World Bank Group, vol. 12(2), pages 297-320, May.
  5. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
  6. 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).
  7. Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, vol. 92(4), pages 889-904, September.
  8. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  9. 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.
  10. Peltzman, Sam, 1976. "Toward a More General Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 211-40, August.
  11. 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.
  12. Laird, Sam, 1997. "MERCOSUR: Objectives and achievements," WTO Staff Working Papers TPRD-97-02, World Trade Organization (WTO), Economic Research and Statistics Division.
  13. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
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