Trade and Integration Policy Analyses for Mercosur: Methodologies of the CGE Modeling with Economies of Scale and Imperfect Competition

Martín Cicowiez, Renato Flôres and Masakazu Watanuki

No 331412, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: This paper addresses the approaches and methodologies used to construct the CGE model to evaluate trade and integration options for Mercosur. The model is a multi-region, multi-sector, comparative static CGE model with 25 sectors and 10 regions, benchmarked in 2001. We introduced several features in both database and modeling, which incorporates some elements of new trade theory beyond the standard neoclassical paradigm. First, in modeling scale economies, we follow the tradition of Smith and Venables (1988), Gasiorek, Smith and Venables (1990, 1992) and particularly Flores (1997). Instead of employing variable and fixed cost structures as in the majority of the models with scale economies, our model applies polynomial cost functional form, as presented in Flores. Second, the model assumes that firms in non-competitive sectors compete under the Cournot-Nash oligopolistic behavior. This enables us to analyze strategic interaction among firms at home and with foreign competitors. Third, the model is built on the new trade database, and the comprehensive hemispheric tariff database constructed from the FTAA database and the inclusion of numerous ALADI agreements. It incorporates all relevant trade agreements and preferential treatments in place in the Western Hemisphere with estimations of ad valorem equivalents of specific, compound tariffs plus TRQs. Finally, the market concentration for noncompetitive industries in Mercosur is taken from the recent study, examining manufacturing competitiveness for large countries in Latin America, using the Herfindahl index of concentration in Brazil.

Keywords: Research Methods/Statistical Methods; International Relations/Trade (search for similar items in EconPapers)
Pages: 31
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/331412/files/2112.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:331412

Access Statistics for this paper

More papers in Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search (aesearch@umn.edu).