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Journal of Economic Integration 2010 March;25(1) :69-104.
The Impact of South-South Preferential Trade Agreements on Industrial Development: An Empirical Test

Pablo Sanguinetti Iulia Siedschlag Christian Volpe Martincus 

Corporación Andina de Fomento Universidad Torcuato Di Tella
Economic and Social Research Institute, Dublin
Inter-American Development Bank
Copyright ©2010 Journal of Economic Integration

Preferential trade agreements could lead to a reallocation of resources across sectors and countries. Production patterns resulting from North-North regional integration initiatives have been documented in several studies. However, empirical evidence on South-South trade agreements is limited. The purpose of this paper is to fill this gap in the empirical literature by looking at the effects of the establishment of MERCOSUR on manufacturing production patterns in Argentina, Brazil, and Uruguay over the period 1985-1998. We find that deepened preferential trade liberalization has fostered a reshaping of manufacturing production structures according to regional comparative advantage in labor and skilled labor. Furthermore, declining internal tariffs have weakened agglomeration forces determined by the distribution of market sizes. By using GMM estimation techniques, we ensure that these results are robust to endogeneity and serial correlation.

JEL Classification: F14, F15, L60

Keywords: preferential trade liberalization | production patterns | MERCOSUR
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2. Amiti, M.(1999), "Specialization Patterns in Europe", Weltwirtschaftliches Archiv, 135(4).
3. Amiti, M.(2001), "Location of Vertically Linked Industries: Agglomeration versus Comparative Advantage", CEPR Discussion Paper 2800.
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