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Trade Creation X Trade Diversion: Evidences from the GTAP Model in the Mercosur Integration Process

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  • De Souza Ferreira Filho, Joaquim Bento

Abstract

The paper examines the insights of an applied general equilibrium model of trade, the GTAP model, for the discussion about the “trade creation x trade diversion” problem in the Mercosur integration process. A simulation of the integration is performed, and the results analyzed. The evidence arising from model results favors the trade creation hypothesis. A strong pro-competitive effect that increases exports in the region is argued to occur, due to the fall in the price of intermediate inputs. This result is found to be consistent with several studies in the literature, both with those that agree with the trade creation hypothesis and those that have identified the fall in input prices as an important mechanism for economic growth in the period.

Suggested Citation

  • De Souza Ferreira Filho, Joaquim Bento, 1999. "Trade Creation X Trade Diversion: Evidences from the GTAP Model in the Mercosur Integration Process," Conference papers 330889, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:330889
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    References listed on IDEAS

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