How Regional Blocs Affect Excluded Countries: The Price Effects of Mercosur

58 Pages Posted: 20 Apr 2016

See all articles by Won Chang

Won Chang

World Bank

L. Alan Winters

University of Sussex; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2001

Abstract

Price data on exports to Brazil from countries excluded from MERCOSUR show that preferential trading agreements hurt nonmember countries by compelling them to reduce their prices to meet competition from suppliers within the regional trading bloc.

The welfare effects of preferential trading agreements are most directly linked to changes in trade prices - that is, the terms of trade.

Chang and Winters use a simple strategic pricing game in segmented markets to measure the effects of MERCOSUR on the pricing of nonmember exports to the regional trading bloc. Working with detailed data on unit values and tariffs, they find that the creation of MERCOSUR is associated with significant declines in the prices of nonmembers' exports to the bloc. These can be explained largely by tariff preferences offered to a country`s partners.

Focusing on the Brazilian market (by far the largest in MERCOSUR), they show that nonmembers' export prices to Brazil respond to both most-favorable-nation and preferential tariffs. Preferential tariffs induce reductions in nonmember export prices.

This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand the effects of regional integration. The authors may be contacted at wchang@worldbank.org or l.a.winters @sussex.ac.uk.

Suggested Citation

Chang, Won and Winters, L. Alan Alan, How Regional Blocs Affect Excluded Countries: The Price Effects of Mercosur (August 2001). Available at SSRN: https://ssrn.com/abstract=604901

Won Chang (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

L. Alan Alan Winters

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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