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Beyond Mercosur: Costs and Benefits of Trade Agreements with Northern Blocs
... Section D reports the estimates obtained for the 28 industrial sectors of the Brazilian input-output table; and section E summarizes the main conclusions. 6 For example, Sánchez (2001) evaluates the costs and benefits for Mercosur of joining FTAA using the applied general equilibrium model of the Global Trade Analysis Project (GETAP), but it arbitrarily multiplies the original elasticities by six. Harrison et al (2002) analyse the impacts of regional and multilateral trade agreements for Brazil while using elasticities estimated for Hong-Kong. ...
In this article we estimate substitution elasticities for goods distinguished
by place of production, specifying whether they are imported or produced
domestically. These are known as the Armington (1969) elasticities and are widely used to assess the impact on the domestic economy of policy changes in countries’ tariff structures; and, in particular, to evaluate the
costs and benefits of signing free trade agreements. The sample period for our study is 1986-2002, and the estimation is done separately for each of the 28 industrial sectors specified in the Brazilian input-output table.
Special consideration is given to the fact that the data is affected by import restrictions for part of that period, and that foreign trade liberalization occurred in Brazil in 1990. The estimation procedure is automated and
takes into consideration the stochastic dynamic properties of the quantity and price series, using the appropriate estimation approach in each case. The Armington elasticities we estimate have the correct sign, and are significant at the 5% level for 20 sectors, at 10% for two sectors, and at 20% for two others. In one sector the estimated value is significant, but has the incorrect sign (negative). For three sectors the estimated elasticity is not significantly different from zero; but these represent only 12% of the average value of total import value in the period 1997-2002. The point estimate of the elasticity of substitution, for the sectors where it is positive and statistically different from zero, varies from 0.16 to 3.6; and its weighted average value is 0.93.
... Section D reports the estimates obtained for the 28 industrial sectors of the Brazilian input-output table; and section E summarizes the main conclusions. 6 For example, Sánchez (2001) evaluates the costs and benefits for Mercosur of joining FTAA using the applied general equilibrium model of the Global Trade Analysis Project (GETAP), but it arbitrarily multiplies the original elasticities by six. Harrison et al (2002) analyse the impacts of regional and multilateral trade agreements for Brazil while using elasticities estimated for Hong-Kong. ...
In this article we estimate substitution elasticities for goods distinguished by place of production, specifying whether they are imported or produced domestically. These are known as the Armington (1969) elasticities and are widely used to assess the impact on the domestic economy of policy changes in countries’ tariff structures; and, in particular, to evaluate the costs and benefits of signing free trade agreements. The sample period
for our study is 1986-2002, and the estimation is done separately for each of the 28 industrial sectors specified in the Brazilian input-output table. Special consideration is given to the fact that the data is affected by import restrictions for part of that period, and that foreign trade liberalization occurred in Brazil in 1990. The estimation procedure is automated and takes into consideration the stochastic dynamic properties of the quantity and price series, using the appropriate estimation approach in each case. The Armington elasticities we estimate have the correct sign, and are
significant at the 5% level for 20 sectors, at 10% for two sectors, and at 20% for two others. In one sector the estimated value is significant, but has the incorrect sign (negative). For three sectors the estimated elasticity is not significantly different from zero; but these represent only 12% of the average value of total import value in the period 1997-2002. The point estimate of the elasticity of substitution, for the sectors where it is positive and statistically different from zero, varies from 0.16 to 3.6; and its weighted average value is 0.93.
... Several papers have used elasticity values much higher than ours (Harrison et al, 2002;Sánchez, 2001;ALADI, 2004;CEI, 2001;Harrison et al 2004). The rationale for these high elasticity values stems from empirical studies that have found very high values for demand elasticity in developing countries (Reidel, 1988). ...
The enforcement of the MERCOSUR as an imperfect customs union is determined by the existence of a Common External Tariff (CET) which has not been fully applied up to this moment. The smallest countries in the MERCOSUR are more open, more specialized and a larger share of their total trade is intrabloc. Their integration to the MERCOSUR deeply affected their external relations and their output composition. On the contrary, for the largest countries, especially Brazil, their integration to the MERCOSUR has had much less impact on production and trade. The objective of this paper is to assess the effects on each of the MERCOSUR countries of different options for the CET. More precisely, the welfare effects and the impact on economic activities of several options are assessed for each of the MERCOSUR countries, using a computable general equilibrium (CGE) model.
... 1 O Brasil está envolvido em diversas negociações comerciais, em vários âmbitos e com abrangência variada: multilateral na Organização Mundial do Comércio (OMC); regional -Área de Livre-Comércio das Américas (ALCA) e acordo de livre-comércio entre o Mercosul e a União Européia (UE); e bilateral -África do Sul e Índia, entre outros. 2 Sánchez (2001), por exemplo, avalia os custos e os benefícios do Mercosul na Alca utilizando o modelo de equilíbrio geral do GTAP (Global Trade Analysis Project), mas multiplica as elasticidades originais por seis. Harrinson e alii (2003) analisam os impactos de acordos comerciais regionais e multilaterais no Brasil, usando as elasticidades estimadas para Hong-Kong. ...
We estimate the Armington elasticity for the 28 industrial sectors of the Brazilian input-output table, for the period 19862002. The methodology we use takes into account the stochastic properties of the data series, and the effects of the Brazilian foreign trade liberalization that occurred in 1990. We obtain statistically significant estimates of the elasticities for 24 sectors, and their estimated values are in the interval 0.2 to 3.6, with a weighted average of 0.9. For tree sectors the estimated elasticity is not significantly different from zero, and for one sector we find a significant elasticity, but it has the wrong sign.
The structure introduced by Armington (1969) has been used to analyze trade policy in partial and general equilibrium models. The Armington elasticities, the degree of substitution between domestic and import goods are known to be important, but are seldom estimated empirically. Therefore, we estimate them for 28 industrial sectors, based on the Brazilian Input-Output table over the period 1986-2000. Initially we discuss the construction of the data set and the treatment that was given to the relative prices, for taking into account the trade liberalization initiated in 1990. According to the dynamic properties of the data we estimate four different econometric models. 25 out of the 28 sectors had positive and significant Armington estimates that were significant at the ten-percent level. They range between 0,16 e 4,95, which reflects the different degree of substitutability between domestic and import goods in the Brazilian industry.
The purpose of the paper is to assess the costs and benefits of different integration options for the Mercosur with all other countries in the Americas. A multiregional, multisector CGE model is used to simulate the effects of several scenarios that are currently on debate. Alternative strategies are here analyzed: bilateral agreements of each of the Mercosur countries with the US; a South American Free Trade Area (SAFTA); and the Free Trade Area of the Americas (FTAA). Additionally, the paper compares the effects of agreements that lead to total trade liberalization with those that exclude the agricultural sector. The macro results of the simulations are negligible but they nevertheless indicate there is a significant impact on the specialization patterns of the Mercosur.
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