A Customs Union with Multinational Firms: The Automobile Market in Argentina and Brazil

37 Pages Posted: 31 Jan 2006 Last revised: 4 Feb 2021

See all articles by Irene Brambilla

Irene Brambilla

Universidad Nacional de La Plata

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Date Written: November 2005

Abstract

This paper looks empirically into the behavior of multinational firms in international oligopolistic markets with trade balance constraints. I show how a particular form of non-tariff barrier applied at the firm level can lead to an increase in trade flows in the presence of intra-firm strategic trade. In my application, I estimate a model of demand, supply and trade policy in the automobile sector in Argentina and Brazil during 1996-1999.I measure the economic impact of a trade balance constraint that was in effect during that period and I compute predicted economic outcomes for the full adoption of a customs union, as has been agreed as part of the Mercosur negotiations, separating the sometimes opposing impacts of the removal of non-tariff barriers and the adoption of a common external tariff. Results show that the elimination of non-tariff barriers dominates the leveling of tariffs. Imports from outside of Mercosur increase under the new regime even though tariffs against these goods become more discriminatory, and exports from Brazil to Argentina decrease once the trade balance constraint is removed.

Suggested Citation

Brambilla, Irene, A Customs Union with Multinational Firms: The Automobile Market in Argentina and Brazil (November 2005). NBER Working Paper No. w11745, Available at SSRN: https://ssrn.com/abstract=842479

Irene Brambilla (Contact Author)

Universidad Nacional de La Plata ( email )

La Plata, Buenos Aires 1900
Argentina

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