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A Customs Union with Multinational Firms: The Automobile Market in Argentina and Brazil

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  • Irene Brambilla

Abstract

This paper looks empirically into the behavior of multinational firms in international oligopolistic markets with trade balance constraints. I show how a particular form of non-tariff barrier applied at the firm level can lead to an increase in trade flows in the presence of intra-firm strategic trade. In my application, I estimate a model of demand, supply and trade policy in the automobile sector in Argentina and Brazil during 1996-1999. I measure the economic impact of a trade balance constraint that was in effect during that period and I compute predicted economic outcomes for the full adoption of a customs union, as has been agreed as part of the Mercosur negotiations, separating the sometimes opposing impacts of the removal of non-tariff barriers and the adoption of a common external tariff. Results show that the elimination of non-tariff barriers dominates the leveling of tariffs. Imports from outside of Mercosur increase under the new regime even though tariffs against these goods become more discriminatory, and exports from Brazil to Argentina decrease once the trade balance constraint is removed.

Suggested Citation

  • Irene Brambilla, 2005. "A Customs Union with Multinational Firms: The Automobile Market in Argentina and Brazil," NBER Working Papers 11745, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11745
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    1. Robert C. Feenstra, 1984. "Voluntary Export Restraint in U.S. Autos, 1980-81: Quality, Employment, and Welfare Effects," NBER Chapters,in: The Structure and Evolution of Recent U.S. Trade Policy, pages 35-66 National Bureau of Economic Research, Inc.
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    Cited by:

    1. 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.
    2. Jan De Loecker & Johannes Van Biesebroeck, 2016. "Effect of International Competition on Firm Productivity and Market Power," NBER Working Papers 21994, National Bureau of Economic Research, Inc.
    3. Cosar, Kerem & Grieco, Paul L. E. & Li, Shengyu & Tintelnot, Felix, 2015. "What Drives Home Market Advantage?," CEPR Discussion Papers 10852, C.E.P.R. Discussion Papers.
    4. Jorge Tovar, 2004. "The Welfare Effects Of Trade Liberalization: Evidence From The Car Industry In Colombia," DOCUMENTOS CEDE 003638, UNIVERSIDAD DE LOS ANDES-CEDE.
    5. 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.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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