20 Years of Arnoldshain Seminar
“20 Years of Challenges for Integration, Globalization, and Development”
September 14 – 18, 2015
Frankfurt and Arnoldshain / Taunus

Ganame, Maria Cecilia    
AbstracttitleEndogenous protection in imperfect competitive markets: an empirical analysis for countries of Mercosur
Coco-authored with Germán Calfat, María Florencia Granato
ShortabstractDuring the 1990s, countries of Mercosur followed the world trend of increasing trade integration both within the bloc and with the rest of the world. As it is well documented by Olarreaga and Soloaga (1998), during the first four years of the agreement, founder members showed a rate of integration with the world that was 10 times larger than that evidenced during the 1980s. The trade integration process was the outcome of an important reduction in trade restrictions. Albeit efforts in terms of liberalising trade policy during the first years of Mercosur; after more than twenty years of its foundation, countries of the region still apply relatively high trade barriers. Political economy views of trade policy may help to understand the level of such trade barriers. This paper provides an empirical analysis that supports the insights of a framework presented in Gáname (2013), which is an extension of the political-support approach of Grossman and Helpman (1994) to the case of monopolistic competitive markets. The sample considers Argentina, Bolivia, Brazil Colombia, Peru, Uruguay and Venezuela. The econometric expression of the endogenous protection for productive sectors within MERCOSUR’s countries takes the form of one for panel analysis. Insights of the model presented in Gáname (2013) are corroborated by the evidence. Estimations of the endogenous tariff regression show that the interactive effect of the ratio of domestic consumption to foreign variety and the inverse of cross price elasticity, impact positively on the level of protection; hence the degree of substitutability between domestic and foreign varieties plays an important role. Moreover, the ratio of import quantity to import price may also affects positively on tariffs. Finally, the approximated value of the general welfare weight would suggest that governments would attach a different weight to individuals; those who belong to an interest group would receive a weight that is approximately 25 percent above the weight given to non-organized individuals.