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Mercosur

Name

Affiliation

Course

Date
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Mercosur

According to Morais and Bender (2006), Mercosur is regarded as a trade diversion

because of the signed agreement, which saw imports from non-members increase. It can also be

linked with commercial openness, which was adopted simultaneously with the bloc formation.

Studies show that Mercosur resulted in trade creation for some member nations while causing

trade diversion for others, which means trade increased between some member nations at the

expense of trade with non-member nations. This is because the coefficients on Mercosur

membership and trends when the countries trading are member countries are not significant since

they are negative. However, the trend is positive when importers are member countries and

exporters are not (Krueger, 1999).

Several impacts resulted from Mercosur, realized by both member and non-member

countries. One of the impacts of Mercosur on firms in member countries is the increase in intra-

bloc trade among them by creating a free and cheap trade area among them. This means that all

member nations eliminated all trade barriers and tariffs among themselves to make it easier and

less costly for firms in member countries to trade (Morais & Bender, 2006). Moreover, Mercosur

enabled firms in member countries to access larger markets, leading to economies of scale and

increased competitiveness. Firms in member countries were also able to increase their bargaining

power in international trade negotiations due to the fact that the large bloc was capable of

negotiating better trade deals with non-member countries. However, firms in member countries

also faced stiff competition from non-member nations, significantly reducing their market share

(Morais & Bender, 2006).

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On the other hand, firms from non-member countries were able to enter new markets.

However, members of Mercosur were diverting trade in manufactured goods from lower-cost

non-members to higher-cost members, which means the member firms were exploiting firms

from non-member countries as trade was happening at the expense of firms from non-member

countries (Galović, 2022). Also, firms could easily source materials because of the increased

intra-trade, where firms in the same industry traded even though it benefited member countries

the most (Galović, 2022).

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References

Galović, T. (2022). THE INTERNATIONAL COMPETITIVENESS OF MERCOSUR. Poslovna

izvrsnost, 16(2), 97-116. https://doi.org/10.22598/pi-be/2022.16.2.97

Morais, A. G., & Bender, S. (2006). Trade creation and trade diversion in Mercosur and

Nafta. XXXIV Encontro Nacional de Economía ANPEC, 5-8.

Krueger, A. O. (1999). Trade creation and trade diversion under NAFTA.