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MERCOSUR AND THE U.S.: AN INTERTEMPORAL GENERAL EQUILIBRIUM EVALUATION OF THE REGIONAL INTEGRATION XINSHEN DIAO AND AGAPI SOMWARU*

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Abstract

A dynamic general equilibrium model is constructed to analyze the effects of the Southern Common Market (MERCOSUR) on the member countries as well as on the U.S. economy. By taking into account dynamic adjustments, we find that while the effects of MERCOSUR on its member countries ’ investment, consumer welfare and national product are positive, the respective effects on the U.S. economy are negative. Such negative effects are small, as U.S.-MERCOSUR trade shares with respect to U.S. total trade are quite small. When MERCOSUR additionally adopts its common external tariff policy, growth in MERCOSUR’s total trade implies an increase in trade between MERCOSUR and other countries. In this case, both MERCOSUR member countries and the U.S. are better off. [C68, F11, O41] 1

Year: 2011
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