We consider the effect of MERCOSUR on trade between Brazilian states and on trade of Brazilian states with the rest of the world. We use a gravity model to shed light on the possible diversion effect of MERCOSUR. Thanks to the data on inter-state trade only for four years including one available year for the pre-MERCOSUR period (1991). We show that MERCOSUR led to an increase of trade of Brazilian states with member countries however without neither affecting intra-state trade nor trade of Brazilian states with third countries. The paper also shows the lack of integration of the Northern region.ou
