《Market presence》.pdf
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Journal of International Economics 60 (2003) 161–175
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M arket presence, contestability, and the terms-of-trade
effects of regional integration
Maurice Schiffa , *, Won Changb
a World Bank, Development Research Group, Mailstop No . MC3-303, 1818 H . St., Washington,
DC 20433, USA
b US Department of Treasury, Office of International Trade, 1440 NY Room 4203,
1500 Pennsylvania Avenue, Washington, DC 20220, USA
Received 30 November 2000; received in revised form 27 July 2001; accepted 19 December 2001
Abstract
This paper examines the impact of market presence and contestability on the price
behavior of US exporters in Brazil’s market when MERCOSUR and MFN trade liberaliza-
tion take place. Using detailed panel data on trade and tariff rates, we find that both the
preferred supplier’s market presence and threat of entry lower (raise) the US price reaction
to MFN (preferential) trade liberalization, with similar quantitative effects. Thus, presence
in, or threat of entry into, partners’ markets implies lower optimal MFN tariffs, and regional
agreements can have pro-competitive effects in contestable markets. We also examine the
‘symmetry’ hypothesis between the effect of tariffs and exchange rates.
2002 Elsevier Science B.V. All rights reserved.
Keywords : Contestable market; Regional integration; MERCOSUR; MFN liberalization
JEL classification : F13; F15; C33; L1
1. Introduction
The number of regional integration agreements (RIAs) has increased dramatical-
ly in the last decade. In fact, nearly all members of the WTO belong now to one or
*Corresponding author. Tel.: 11-202-473-796
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