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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.

Suggested Citation

  • Brambilla, Irene, 2005. "A Customs Union with Multinational Firms: The Automobile Market in Argentina and Brazil," Working Papers 4, Yale University, Department of Economics.
    • Handle: RePEc:ecl:yaleco:4
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    References listed on IDEAS

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    Cited by:

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    2. Kitano, Taiju & Ohashi, Hiroshi, 2009. "Did US safeguards resuscitate Harley-Davidson in the 1980s?," Journal of International Economics, Elsevier, vol. 79(2), pages 186-197, November.
    3. Minsoo Park & Hongjai Rhee, 2014. "Effects of FTA Provisions on the Market Structure of the Korean Automobile Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 39-58, August.
    4. Callejas, Jerónimo & Linn,Joshua Abraham & Steinbuks,Jevgenijs, 2022. "Welfare and Environmental Benefits of Electric Vehicle Tax Policies in DevelopingCountries : Evidence from Colombia," Policy Research Working Paper Series 10001, The World Bank.
    5. R. Scott Hiller & Scott J. Savage, 2021. "Tariff Pass‐Through and Welfare in the Tablet Computer Market," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 369-409, June.
    6. Jorge Tovar, 2004. "The Welfare Effects Of Trade Liberalization: Evidence From The Car Industry In Colombia," Documentos CEDE 3638, Universidad de los Andes, Facultad de Economía, CEDE.
    7. Julia González & M. Victoria Lacaze, 2012. "Preferences, Market Structure, and Welfare Evaluations in the Argentinean FFP Industry: A Case in Buenos Aires Province," Agribusiness, John Wiley & Sons, Ltd., vol. 28(3), pages 341-360, June.
    8. 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.
    9. Van Biesebroeck, Johannes & De loecker, Jan, 2016. "The effect of international competition on firm productivity and market power," CEPR Discussion Papers 11114, C.E.P.R. Discussion Papers.

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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