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Discussion Paper Details

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Title: How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR

Author(s): Won Chang and L. Alan Winters

Publication Date: June 1999

Keyword(s): Imperfect Competition, Mercosur, Regional Integration and Terms of Trade

Programme Area(s): International Trade and Regional Economics

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 'non-member' exports to the region. Working with detailed data on unit values and tariffs we find that the creation of MERCOSUR is associated with significant declines in the prices of non-members' exports to the region and that these can be largely explained by tariff preferences offered to its partners. We focus on the Brazilian market (by far the largest in MERCOSUR) and show that non-members' export prices to Brazil respond to both m.f.n. and preferential tariffs, the latter inducing reductions in non-member export prices.

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Bibliographic Reference

Chang, W and Winters, L. 1999. 'How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2179