The gains from MERCOSUL: a general equilibrium, imperfect competition evaluation

Abstract

This paper presents general equilibrium evaluations of the MERCOSUL. Three scenarios are examined, varying from increased world regionalism to an optimistic multilateral situation. Welfare gains are significant for Uruguay, somewhat less for Argentina, and also present in Brazil. Uruguay is less vulnerable to the world environment; Argentina, on the contrary, profits much from the union and multilateralism. MERCOSUL exports rise for all sectors, and, under all scenarios, chemicals imports increase; the EU and NAFTA are equally important trade partners. Consumers gain even in sectors with modest trade diversion, though the number of firms decreases in all sectors but cars. Sensitivity analyses that raise results for Argentina depend on how Brazil engages in the integration. They also point that a 'smaller Brazil' leaves everyone worse off. Complementarity, either for Argentina and Brazil or for Argentina and Uruguay, seems the likely outcome of MERCOSUL. Though the pattern of gains is clear for Uruguay, a deeper analysis is needed to identify, for Argentina and Brazil, other key areas. © Society for Policy Modeling, 1997.