How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR
- 1 August 2002
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 92 (4), 889-904
- https://doi.org/10.1257/00028280260344515
Abstract
The welfare effects of PTAs are most directly linked to changes in trade prices, i.e., the terms of trade. This paper employs a simple strategic pricing game in segmented markets to measure the effects of MERCOSUR on the pricing of “nonmember” exports to Brazil: As Brazil exempts its MERCOSUR partners from tariffs, the resulting competitive pressure leads other exporters to reduce their prices. Working with detailed data on unit values and tariffs we find that the creation of MERCOSUR was associated with significant declines in the prices of nonmembers' exports to the region.Keywords
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