The fall of Brazilian national borders after Mercosur's formation and its impact on apparent consumption in the nineties*

Abstract

National borders seem to be losing relevance in the last decades as a variety of issues has been reducing the costs of international trade, such as technological progress, by reducing costs of transportation and communication and trade liberalisation, by giving more freely access to national markets. This paper examines the changes in Brazil's trade patterns based on an apparent consumption analysis, comparing the pre‐Mercosur period with the post‐integration phase. This approach provides a direct link with the theory of regional integration allowing one to explicitly differentiate between trade creation and trade diversion. The analysis describes how the Brazilian demand for sectors in an ISIC three‐digit level, divided between domestic production, imports from members and imports from non‐member countries, evolved in that period. The results show that in 18 out of 21 sectors analysed, there was a decrease in Brazilian border effect, with the shares of imports from both members and non‐member countries increasing in Brazil's apparent consumption at the expense of domestic production. However, it seems that the likely increase in welfare resulting from this should not be attributed mostly to Mercosur but instead to unilateral tariff liberalisation that took place in the period up to 1994.