Trade Creation and Diversion in Mercosul: The Case of Agricultural Products
Institute for Applied Economic Research Discussion Paper No. 631
22 Pages Posted: 19 Apr 1999
Date Written: March 1999
The literature on regional trade agreements points out two main effects: trade criation and trade diversion. While the former refers to the substitution of less efficient producers for more efficient ones due to the global protection, the latter captures the substitution of the more efficient producers for less efficient producers as a consequence of the trade limination between members and non members of the agreement. Official representatives of the U.S. goverment have stressed that the main effect of the Mercosul criation has been mainly of a trade diversion nature. Nevertheless, that vision has not been supported on an empirical basis, in a context where trade has grown substantially both intra and extra Mercosul. At the time of criation of Mercosul a main worry of Brazilian authorities was the possibility of substantial losses in agricultural markets, mainly in products from South of the country. This study aims to estimate the trade criation and diversion effects of the main agricultural products for Brazil (wheat, cotton, milk, rice, maize, meat), in an attempt to help to clarify the debate on the real effects of Mercosul. The main results obtained here show that the trade creation effects associated with the creation of Mercosul have far exceeded the trade diversion effects, both at the aggregate level and at individual products level.
Note: Downloadable paper is in Spanish.
JEL Classification: F4, Q1
Suggested Citation: Suggested Citation