A Computable General Equilibrium Model (CGE) assessment of the short and long-run impact on Brazil of the European Union – Mercosur Trade Agreement

Carlos Javier Gonzalez Cabrera, María C. Latorre and Gabriela Ortiz Valverde

No 333242, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: The evaluation of trade agreements through general equilibrium models is very useful in the political decision making of States at the level of trade, production and citizens' welfare. This type of simulation allows the combination of several agents, factors of production and different regions, providing very detailed information at the macroeconomic and microeconomic level with the possibility of applying different assumptions that allow different results to be obtained. The "Association Agreement" between the European Union and Mercosur is an agreement that, due to its scope and size of the economies of the blocks that comprise them, is one of the largest ever reached by both, and was signed in 2019 after 20 years of negotiations. The European Union's trade policy tends towards a liberalization that transcends the purely commercial aspect and expands towards aspects related to sustainability and respect for human rights. Mercosur (made up of Argentina, Brazil, Paraguay and Uruguay) is an imperfect customs union whose main economic drive is based on trade in its internal market, and having reached a comprehensive agreement with the EU presents an opportunity to liberalize not only its trade in goods, but also in services, including aspects such as foreign direct investment (FDI) and public procurement, the latter being of special interest because it is hermetic and does not allow foreign companies to compete in its internal market to provide goods and services in the public sector. This gradual liberalization, with certain exceptions that the agreement allows, is attractive to EU companies that want to expand their operations in a huge market. This analysis, however, will focus exclusively on the impact of the agreement on Brazil through a Computable General Equilibrium Model (CGE). Brazil represents approximately ¾ of Mercosur's GDP, so the impact on this member state would largely affect the rest of the trade block.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Date: 2020
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