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

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  • Won Chang
  • L. Alan Winters

Abstract

The welfare effects of PTAs are most directly linked to changes in trade prices, i.e., the terms of trade. This paper employs a simple strategic pricing game in segmented markets to measure the effects of MERCOSUR on the pricing of "nonmember" exports to Brazil: As Brazil exempts its MERCOSUR partners from tariffs, the resulting competitive pressure leads other exporters to reduce their prices. Working with detailed data on unit values and tariffs we find that the creation of MERCOSUR was associated with significant declines in the prices of nonmembers' exports to the region. (JEL F13, F15).

Suggested Citation

  • Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, vol. 92(4), pages 889-904, September.
    • Handle: RePEc:aea:aecrev:v:92:y:2002:i:4:p:889-904
    Note: DOI: 10.1257/00028280260344515
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    References listed on IDEAS

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    1. Bagwell, Kyle & Staiger, Robert W, 1998. "Will Preferential Agreements Undermine the Multilateral Trading System?," Economic Journal, Royal Economic Society, vol. 108(449), pages 1162-1182, July.
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F10 - International Economics - - Trade - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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