Is MERCOSUR's External Agenda Pro-Poor? An Assessment of the European Union-MERCOSUR Free-Trade Agreement on Poverty in Uruguay Applying MIRAGE

52 Pages Posted: 9 Jan 2013

See all articles by Carmen Estrades

Carmen Estrades

Universidad de la Republica, Uruguay; International Food Policy Research Inst.

Date Written: October 1, 2012

Abstract

In 2010, after several years of being stalled, negotiations between MERCOSUR (the Common Market of the Southern Cone) and the European Union (EU) to build a free-trade agreement (FTA) were resumed. This FTA is expected to have an important impact on MERCOSUR economies, especially if both blocs reach an agreement regarding the agricultural sector. This paper analyzes the impact of an FTA between MERCOSUR and EU, with a special focus on distributional impacts on Uruguay. For this we apply an improved version of MIRAGE (Modeling International Relationships in Applied General Equilibrium) with household heterogeneity. The representative agent in the standard version of the MIRAGE model is decomposed into a private and a public agent for all regions, and into a high number of households for Uruguay. Results show that a trade agreement between MERCOSUR and EU would have a significant impact on trade flows between both blocs. MERCOSUR economies would increase agriculture exports to EU and industrial imports from EU. Welfare increases in all countries participating in the agreement but is more pronounced for the two small countries of MERCOSUR: Paraguay and Uruguay. In Uruguay, welfare increases for different categories of households, but the richest households benefit the most. In spite of this, inequality decreases as a consequence of the agreement, and poverty rates decrease throughout the country.

Keywords: CGE modeling, trade negotiations, sensitive products, poverty, MERCOSUR, Uruguay

Suggested Citation

Estrades, Carmen, Is MERCOSUR's External Agenda Pro-Poor? An Assessment of the European Union-MERCOSUR Free-Trade Agreement on Poverty in Uruguay Applying MIRAGE (October 1, 2012). IFPRI Discussion Paper 01219, Available at SSRN: https://ssrn.com/abstract=2198455 or http://dx.doi.org/10.2139/ssrn.2198455

Carmen Estrades (Contact Author)

Universidad de la Republica, Uruguay ( email )

Constituyente 1502, Piso 6
Montevideo, 11200
Uruguay

International Food Policy Research Inst. ( email )

United States

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