Chapter 3 Welfare Gains from Changing Partners in a Trade Bloc: The Case of MERCOSUR

Lorenzo Caliendo; Fernando Parro

doi:10.1108/S1574-8715(2010)0000007006

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Frontiers of Economics and Globalization

ISSN: 1574-8715
Series editor(s): Professor Hamid Beladi, Professor E. Kwan Choi

Subject Area: Economics

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Chapter 3 Welfare Gains from Changing Partners in a Trade Bloc: The Case of MERCOSUR

Document Information:
Title:	Chapter 3 Welfare Gains from Changing Partners in a Trade Bloc: The Case of MERCOSUR
Author(s):	Lorenzo Caliendo, Fernando Parro
Volume:	7 Editor(s): John Gilbert ISBN: 978-0-85724-141-2 eISBN: 978-0-85724-142-9
Citation:	Lorenzo Caliendo, Fernando Parro (2010), Chapter 3 Welfare Gains from Changing Partners in a Trade Bloc: The Case of MERCOSUR, in John Gilbert (ed.) New Developments in Computable General Equilibrium Analysis for Trade Policy (Frontiers of Economics and Globalization, Volume 7), Emerald Group Publishing Limited, pp.41-60
DOI:	10.1108/S1574-8715(2010)0000007006 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
Abstract:	This chapter applies the new heterogeneous firm CGE model of Caliendo and Parro (2009) to determine what the Ricardian gains are from changing partners for members of a trade bloc. We focus on the MERCOSUR case, using a model with 48 sectors and 5 countries. Motivated by recent policy discussions, we quantify Uruguay's trade and welfare effects from signing a Free Trade Agreement with the United States and leaving MERCOSUR. We find positive welfare effects for Uruguay from bilaterally reducing tariffs with the United States. Most of the gains come from having access to lower-cost intermediate inputs for production. We then consider the policy experiment of bilaterally eliminating tariffs between all members of MERCOSUR and the United States. We find that Uruguay has the largest gains, while Argentina and Brazil do not benefit much. This chapter also illustrates how new models are a promising tool for the analysis of trade.