Do economic integration and fiscal competition help to explain location patterns?

Do trade integration and fiscal competition contribute to shape the economic landscape? The answer is yes. This paper uses a theoretical model and an econometric analysis of Brazilian regional manufacturing employment data over the period 1990-1998 to address this question. Brazil is a natural case study because this country liberalized trade during the 1990s and their sub-national governments engaged in a fiscal dispute. Econometric results show that trade liberalization has had an impact on spatial developments and this effect is increasing over time. Moreover, subsidies also exert an influence, but their relative importance is falling. --Economic Integration,Fiscal Competition,Location Patterns,Manufacturing Industries,Brazil

Specialization and Diverging Manufacturing Structures: The Aftermath of Trade Policy Reforms in Developing Countries

Trade barriers have been declining around the world over the last five decades. Countries reduced their tariffs unilaterally as well as concertedly in the framework of regional integration agreements. As a consequence, trade flows among economies have substantially intensified. According to economic theory, this should have had a significant impact on the countries’ specialization patterns. However, to our knowledge, there is no direct robust econometric evidence on the effect of trade policy on the overall degree of countries’ specialization. This paper aims at filling this gap in the literature. We focus on ten Latin American countries members of the LAIA (Latin American Integration Association) over the period 1985-1998. These countries are natural case studies because in the last two decades they implemented road and comprehensive trade liberalization programs, both generally and preferentially, starting from relatively high tariff protection levels. Our econometric results suggest that reducing own MFN tariffs is associated with increasing manufacturing production specialization. Furthermore, we find that preferential trade liberalization and differences in the degree of unilateral openness have resulted in increased dissimilarities in manufacturing production structures across countries. These results are robust to the specialization measure being used, the correction for groupwise heteroscedasticity, cross-sectional correlation, serial correlation and endogeneity biases, and the inclusion of indicators to account for the real exchange misalignment prevailing in the region during the period under examination.Specialization, Trade Policy, Latin America

Economic integration and manufacturing concentration patterns: Evidence from Mercosur

Trade policy changes are likely to result in a reallocation of resources across sectors and space. Over the past two decades, Argentina, Brazil, Paraguay, and Uruguay have implemented unilateral trade liberalization programs and formed a regional bloc, Mercosur. The effects of these reforms on production structures in these countries have not received a great deal of attention. Have patterns of manufacturing concentration changed? What are their main determinants? This paper analyses relative manufacturing concentration patterns in Argentina, Brazil, and Uruguay over the period 1985-1998. The econometric evidence indicates that localization of demand and comparative advantages are the main driving forces of these patterns. The establishment of Mercosur seems to have played a role in the spatial distribution of manufacturing in the above three countries. --Economic Integration,Concentration of Industries,Comparative advantage,Economic Geography,Mercosur

Determinants of Manufacturing Concentration Patterns in Mercosur

Over the last fifteen years, Argentina, Brazil, Paraguay and Uruguay have implemented major economic reforms including unilateral trade liberalization programs and the constitution of a regional trade bloc, Mercosur. This trade policy change has led to a reallocation of resources across sectors and space. The impact of the trade liberalization on industrial production structures in Mercosur countries has been little investigated so far. How concentrated /dispersed are manufacturing activities? Have patterns of manufacturing concentration changed? What are the determinants of manufacturing concentration patterns? This paper identifies and explains relative concentration patterns of manufacturing activities in three Mercosur member countries, namely, Argentina, Brazil, and Uruguay, over the period 1970-1998. In particular, using econometric techniques, we analyse inter-industry and across-time differences in manufacturing concentration patterns and explain their main determinants over this period. Our research results suggest that some industries, such as Beverages, Tobacco and Leather are highly concentrated in relative terms, while industries such as Glass, Textiles, and Fabricated metal products are dispersed. We find that on average, relative manufacturing concentration has increased over the above mentioned period. While industries, such as, Non-electrical machinery, Electrical machinery and Professional and scientific instruments have experienced significant monotonic increases, other industries, such as Printing and publishing, Rubber products, and Non-ferrous metals have registered a reversal of their relative concentration levels. Our econometric analysis indicates that localization of demand and comparative advantage factors are the main driving forces of the observed relative manufacturing concentration patterns.

SMEs in Argentina: Who are the Exporters

There exists a growing body of literature which looks at export decisions made by firms. Most studies focus on developed countries and do not explore whether different behavioral patterns prevail over the firm size distribution. This paper aims at filling this gap in the literature by analyzing the export behavior of a statistically representative sample of 192 Small and Medium-Size Enterprises (SMEs) in a developing country, Argentina, over the period 1996-1998. We find that the level of employment, sourcing from abroad, investment in product improvement and average productivity are associated with a higher probability of exporting. Training activities for employees are important to export outside of MERCOSUR.SME, Exports, Argentina

Regional Business Cycles and National Economic Borders - What are the Effects of Trade in Developing Countries?

Does trade lead to increased cross-country regional business cycle synchronization and reduced national economic borders? The theory does not really provide an unambiguous answer. Our paper addresses empirically this question using Argentina and Brazil as case studies of developing countries. These countries liberalized unilaterally trade since the mid-1980s and also established MERCOSUR (a regional integration agreement with Paraguay and Uruguay) in 1991. As a consequence, the intensity of trade between Argentina and Brazil rose significantly. The answer to the initial question is no. The increase in bilateral trade between Argentina and Brazil did not translate into significantly more synchronized regional business cycles. Using Gross Provincial Product for Argentina and Gross State Product for Brazil for the period 1961 to 2000, we find that within-country regional business cycle synchronization is substantially larger than cross-country regional business cycle synchronization. Moreover, this difference has increased over time. These results are mainly driven by Argentina’s behavior and hold even after controlling for factors such as distance, size, sectoral specialization, and the degree of regional fiscal policy coordination. The empirical evidence based on Brazilian states and Argentina as a whole suggests that the higher level of trade among regions within a country is an important factor to that accounts for the observed border effect. In the case of Argentina additional factors such as monetary and exchange rate policies and large country-specific shocks have also played a significant role.

Economic integration and location of manufacturing activities: Evidence from MERCOSUR

Economic integration leads to a reallocation of resources across sectors and space. Location patterns resulting from North-North and North-South regional trade initiatives have been documented in several studies. However, empirical evidence on South-South agreements is rather limited. In this respect, MERCOSUR provides an interesting case study. This paper aims at answering the following questions: What are the main driving factors explaining location patterns in the Southern Cone? To what extent has the establishment of MERCOSUR affected location of economic activities? Using data for the period 1985-1998, we identify the determinants of manufacturing location patterns and assess their changes in the context of increased economic integration. We find that preferential trade liberalization has fostered the influence of factors underlined by the recent trade theories, such as economies of scale and inputoutput linkages, relative to comparative advantage considerations. --Economic Integration,Location of Industrial Activities,MERCOSUR

Economic integration in a multicone world?

This paper examines whether economic integration favors countries' convergence into a common cone of diversification. We analyze the manufacturing specialization patterns for a sample of 19 current and potential European Union countries over the period 1963-1998, and assess the impact of integration on their evolution. We perform year-by-year threshold estimations of Rybczynski relationships to identify the diversification cones and then estimate discrete choice models to investigate whether membership in the European Union is associated with a higher probability of being in a same cone. Economic integration in Europe is found to have promoted convergence from lower to higher diversification cones. --Multiple Diversification Cones,Convergence,European Integration,Threshold Estimation,Dynamic Probit Models

Economic Integration and Location of Manufacturing Activities: Evidence from Mercosur

Economic integration leads to a reallocation of resources across sectors and space. Location patterns resulting from North-North and North-South regional trade initiatives have been documented in several studies. However, empirical evidence on South-South agreements is rather limited. In this respect, MERCOSUR provides an interesting case study. This paper aims at answering the following questions: What are the main driving factors explaining location patterns in the Southern Cone? To what extent has the establishment of MERCOSUR affected location of economic activities? Using data for the period 1985-1998, we identify the determinants of manufacturing location patterns and assess their changes in the context of increased economic integration. We find that preferential trade liberalization has fostered the influence of factors underlined by the recent trade theories, such as economies of scale and input-output linkages, relative to comparative advantage considerations. Keywords: Economic Integration, Location of Industrial Activities, MERCOSUR JEL-Classification: F14, F15, L60