Short-run Regional Effects of Alternative Strategies for Economic Integration: The Case of Brazil

Motivated by both economic and political objectives, Brazil has been pursuing, in recent years, different trade arrangements in an attempt to reinforce strategic impulses for economic development. In this paper, alternative strategies of economic integration are evaluated from the Brazilian perspective. Traditional trade gains and losses are considered in a cost-competitiveness approach, based on relative changes in the industrial cost and demand structures. In the first part of the analysis, a national computable general equilibrium model is used in order to assess the first-round impacts of three alternative trade liberalization scenarios. The main findings indicate that general trade agreements under WTO negotiations are preferable to either the implementation of a free trade area in the Americas or regional agreements involving Mercosur and the European Union. However, each trade arrangement would entail differential structural impacts that serve to different development purposes. In the second part, a Machlup-Goodwin-type interregional model is integrated to the CGE model in order to generate a top-down disaggregation of the national results. Spatial implications of the trade policies are assessed, showing that the trade strategies examined are likely to increase regional inequality in the country.