The Political Economy behind Trade and Land Use: Legal Amazon in the EU-Mercosur Free Trade Agreement

Alan Leal and Eduardo Haddad

No 4-2024, TD NEREUS from Núcleo de Economia Regional e Urbana da Universidade de São Paulo (NEREUS)

Abstract: Contingent free trade agreements are an instrument of interaction between countries that is being used more recently. In this paper, we consider the European Union-Mercosur Free Trade Agreement and how this FTA can be used by EU to induce certain land use changes in Brazil. This analysis uses a quantitative trade model and different trade arrangements to test whether these conditional trade agreements accomplish what they originally intend. We find that in the case of the EU-Mercosur FTA, Brazilian Legal Amazon states tend to alternate at seeing reduction of land use. However, for the kinds of trade arrangement, among the ones considered in this paper, welfare seems to increase state-wide. This indicates that even if Brazil concede entering in non-totally free trade agreements, there are trade gains to be obtained. Internally to Brazil, nevertheless, a contingent free trade agreement might create some political instability for the country. Our paper aims to anticipate this political discussion by bringing to the front the fact the any kind of trade agreement will benefit states differently.

Keywords: trade; land use; quantitative spatial model (search for similar items in EconPapers)
JEL-codes: F10 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2024-07-23
New Economics Papers: this item is included in nep-int and nep-lam
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