A customs union with multinational firms: the automobile market in Argentina and Brazil
National Bureau of Economic Research, 2005 - Business & Economics - 35 pages
"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"--National Bureau of Economic Research web site.
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adoption alternative utility Argentina and Brazil Argentina Brazil Average change balance constraint GTB Berry bilateral imports bilateral quotas bilateral trade Brazil to Argentina Brazilian car model cars produced change in income Change in number change in price characteristics Chrysler Cjt(l common external tariff compensating variation compute convergence period cost imposed cost of production counterfactual countries customs union demand function demand parameters dollars domestic Economics effect elasticity elimination of NTBs export credits external imports global trade balance hatchback imports from Brazil increase internal Irene Brambilla Jens Ludwig Lagrange multipliers Levinsohn and Pakes matrix of price Mean Price Mercosur minivans multinomial logit NBER non-tariff barriers normally distributed number of units number of vehicles order conditions percent confidence intervals percent in Argentina Peugeot-Citroen price derivatives price equation production cost Renault sold in Argentina tariff level Toyota trade balance constraint trade flows trade policy parameters value of exports vector Verboven Volkswagen zero