Trade Diverion and Declinning Tariffs: Evidence from MERCOSUR

Pablo Sanguinetti, Alok Bohara and Kishore Guatanabe

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: This paper empirically examines the alternative posed by Richardson (1993) to the traditional view that trade integration may exacerbate inefficiencies. Richardson’s hypothesis boldly predicts that trade diversion (and trade creation) may actually cause tariffs to decline! The hypothesis is fundamentally attributable to the presence of a political component in the governments’ objective functions. A cross-sectionally rich data set on trade and tariffs from the Mercosur-pact countries, primarily Argentina, is used. The evidence yields surprising conclusions about the validity of endogenous tariff determination in models of trade integration.

Pages: 35 pages
Date: 2003-04
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Journal Article: Trade diversion and declining tariffs: evidence from Mercosur (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:003

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