National Disparities and Regional Allocation of Resources: A Positive Framework*

Deeper integration of MERCOSUR aims at reducing the barriers to the international mobility of goods, factors and ideas as well as at promoting effective policy coordination among member countries. Lower barriers make the interactions among customers and suppliers in the integrated area increasingly tight, thus fostering the creation of a common market within the MERCOSUR economic space. The present paper proposes a theoretical framework to assess the economic impact and the welfare implications of the resulting reallocation of resources across firms and countries. Its final purpose is to answer the central questions whether and how the distribution of the associated costs and benefits might create resistance from national interests to move towards deeper integration. * Paper prepared within the framework of “Deeper Integration of MERCOSUR: Dealing with Disparities”, a joint initiative between the Integration and Regional Programs Department and the Operations Department 1 of the InterAmerican Development Bank. The author is grateful to Mauricio Moreira and Christian Volpe Martincus for advise on MERCOSUR stylized facts. He is also indebted with seminar participants at the Inter-American Development Bank in Washington DC, those at the conference “Deepening Integration of MERCOSUR: Dealing with Disparities” in Rio de Janeiro as well as with the IDB-INT/RE1 team for helpful comments. ** Dipartimento di Scienze Economiche, Università di Bologna, Strada Maggiore 45, 40125 Bologna, Italy. E-mail: [email protected].