The Impact of South-South Preferential Trade Agreements on Industrial Development: An Empirical Test
Christian Volpe Martincus () and
Iulia Siedschlag ()
Additional contact information Christian Volpe Martincus: Inter-American Development Bank, Postal: Inter-American Development Bank, Stop W0610,, 1300 New York Avenue, NW, Washington, DC 20577, U.S.A
Preferential trade agreements could lead to a reallocation of resources across sectors and countries. Production patterns resulting from North-North regional integration initiatives have been documented in several studies. However, empirical evidence on South-South trade agreements is limited. The purpose of this paper is to fill this gap in the empirical literature by looking at the effects of the establishment of MERCOSUR on manufacturing production patterns in Argentina, Brazil, and Uruguay over the period 1985-1998. We find that deepened preferential trade liberalization has fostered a reshaping of manufacturing production structures according to regional comparative advantage in labor and skilled labor. Furthermore, declining internal tariffs have weakened agglomeration forces determined by the distribution of market sizes. By using GMM estimation techniques, we ensure that these results are robust to endogeneity and serial correlation.