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Endogenous protection in Mercosul: an empirical analysis

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  • Calfat, Germán
  • Ganame, Maria Cecilia
  • Flôres Junior, Renato Galvão

Abstract

This paper analyses the equilibrium structure of protection in Mercosul, developing empirical analyses based on the literature ensuing from the sequence of models set forth by Grossman and Helpman since 1994. Not only Mercosul’s common external tariff (CET) may be explained under a political economy perspective, but the existence of deviations, both at the level of the external tariffs and at that of the internal ones, make it interesting to contrast several structures under this approach. Different general equilibrium frameworks, in which governments are concerned with campaign contributions and with the welfare of the average voter, while organized special-interest groups care only about the welfare of their members, are used as the theoretical basis of the empirical tests. We build a single equation for explaining the CET and two fourequations systems (one equation for each member) for explaining deviations from the CET and from the internal free trade between members. The results (at the two-digit level) shed an interesting light on the sectoral dynamics of protection in each country; notably, Brazil seems to fit in better in the model framework, followed by Uruguay. In the case of the CET, and of deviations from it, the interaction between the domestic lobbies in the four countries plays a major role. There is also suggestion that the lobby structure that bid for deviations, be they internal or external, differs from the one which bid for the CET.

Suggested Citation

  • Calfat, Germán & Ganame, Maria Cecilia & Flôres Junior, Renato Galvão, 2000. "Endogenous protection in Mercosul: an empirical analysis," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 407, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
  • Handle: RePEc:fgv:epgewp:407
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    Cited by:

    1. Mauricio Mesquita Moreira, 2009. "Brazil's Trade Policy: Old and New Issues," IDB Publications (Working Papers) 9295, Inter-American Development Bank.
    2. Mesquita Moreira, Mauricio, 2011. "Brazil's Trade Policy: Old and New Issues," IDB Publications (Working Papers) 2508, Inter-American Development Bank.
    3. Bohara, Alok K. & Gawande, Kishore & Sanguinetti, Pablo, 2004. "Trade diversion and declining tariffs: evidence from Mercosur," Journal of International Economics, Elsevier, vol. 64(1), pages 65-88, October.
    4. Flôres Jr., Renato G., 2011. "Regional Competitiveness Policies for Deeper Integration in MERCOSUL," IDB Publications (Working Papers) 2931, Inter-American Development Bank.

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