A highway across the Atlantic? Trade and welfare effects of the EU-Mercosur agreement (Updated: June 2021)

Series: Working Papers. 2023.

Author: Jacopo Timini and Francesca Viani.

Published in: International Economics, Volume 169, pp 291-308, May 2022

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A highway across the Atlantic? Trade and welfare effects of the EU-Mercosur agreement (Updated: June 2021) (1 MB)

Abstract

In this paper we analyze the EU-Mercosur agreement and predict its effects on trade and
welfare using a general equilibrium structural gravity model. First, we exploit the detailed
provision-level information available for the EU-Mercosur agreement to identify partial
equilibrium trade effects of existing treaties with similar set of provisions. In a second
step, the estimated increase in trade is mapped into reductions in bilateral trade costs
and imputed to EU-Mercosur country pairs to compute the general equilibrium effects of
the agreement in terms of trade creation, trade diversion, and welfare effects. Our results
indicate that the positive effects on trade and welfare stemming from the EU-Mercosur
agreement are likely to be economically important, especially for Mercosur countries,
and substantially heterogeneous both between and within the two blocs.