Estimating the price effects of regional trade arrangements

One of the major concerns with the proliferation of Preferential Trading Arrangements (PTAs) has been whether non-members are affected by these recent trends in trade policy. Ex post studies which do examine member and non-member effects usually assess integration effects by examining member and non-member trade volumes and shares. The following chapters discuss a more reliable and direct method of assessing the impact of regional integration by examining the price effects, and hence ceteris paribus, the terms of trade.; Chapter I argues that the effect of regional trading preferences on members of blocs and on excluded countries should be investigated by looking at their effects on the prices at which trade occurs. It introduces the methodology in which prices and the terms of trade can potentially be measured using a simple model of Bertrand competitors in an integrating market. It then offers the first ex post empirical exercise of this kind, exploring the effect of Spanish accession to the EC on the prices of imports from major OECD suppliers. Using a simple theoretical model and detailed data on trade in finished manufactures, we obtain estimates and test various hypotheses of symmetry between tariffs and exchange rates.; Chapter 2 utilizes and extends the methodology of the previous chapter and gets to the substance of actually estimating non-member effects. The welfare effects of PTAs, argued above, are most directly linked to changes in trade prices. To examine this process, this chapter employs a simple strategic pricing game in segmented markets, where members and non-members supply a differentiated product to an integrating market. The chapter builds on the micro-foundations of rivalry between member and non-member firms as tariffs are reduced to the former, and estimate the price response of the latter.; In particular we focus on the imports of the Brazilian market (by far the largest in MERCOSUR) and show that non-members' export prices to Brazil respond to both of Brazil's m.f.n. and preferential tariffs, the latter inducing reductions in non-member export prices. The estimates show that the creation of MERCOSUR is associated with significant declines in non-members' export prices to Brazil compared to its export prices of the same product to the rest of the world.; Chapter 3 further examines non-member exporters, supplying a market that is undergoing integration and examines the pricing of incumbents in that market when they are faced with the prospect of entry due to preferential tariffs offered to its potential rivals. Using very detailed panel data on trade and tariff rates we measure the effects of contestability within a market. We show that viable entrants may cause nonpreferred suppliers to react by reducing their export prices in that market. We take the most recent case of a regional integration arrangement, MERCOSUR, and examine the Brazilian import market as the target market for non-preferred suppliers. We estimate that potential entry by the Argentines is a significant factor in the pricing of non-preferred exports to the Brazilian market when it is contestable. (Abstract shortened by UMI.)...