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“Regional Effects of Brazilian Trade Policy” Outline Background Strategies of Integration Strategies of Integration Short run Direction of Trade: Exports by Destination (1999-2001) Regional Share in National Exports by Destination (1999-2001) The EFES-ARG Model Impacts of Economic Integration Summary of Results Regional (State) Impacts Summary of Results FTAA:Impact on Activity Level, Brazilian States (in %) EU:Impact on Activity Level, Brazilian States (in %) All:Impact on Activity Level, Brazilian States (in %) Final Remarks Brazilian States’ Main Trade Partners “Regional Effects of Brazilian Trade Policy”Prof. Dr. Eduardo A. HaddadFEA-FIPE, University ofSãoPaulo, Brazil REAL, University of Illinois, USAOutline•Introduction –Strategies of economic integration•Methodology–National CGE model: EFES-ARG–Model of interstate flows•Main results–Macro andsectoralimpacts–Regional impacts •Final remarksBackground•The B-MARIA Project (Haddad,1999)–Baer, Haddad eHewings(1998); Haddad eHewings(1999, 2001ab); Haddad eAzzoni(2001)•UNDP/IPEA Project (Haddad et al., 2001)•IDB Project•FIPE Project–Regional accounts•CONFAZStrategies of Integration•Mercosur: next step?–FTAA, European Union, WTO–Argentina•Likely structural impacts–Trade flows–Sectors–Regions•The static impact-effect question:–Short-term considerations–Trade creation vs. Trade diversion•Structure is given•Changes in policy variables•The dynamic time-path question:–Long-term considerations•Technology, learning, externalities, political economy, political agreementsStrategies of IntegrationShort run•The results are related to the “first-round”impacts of the trade liberalization process, and can be perceived in a time span long enough: for local prices of imports to fully adjust to tariff changes;for major import users to decide whether or not to switch to domestic suppliers; for domestic suppliers to hire labor and to expand output with their existing plant; for new investment plans to be made but not completed; for price increases to be passed onto wages and wage increases passed back to prices.Direction of Trade: Exports by Destination (1999-2001)MercosurNaftaRestof FTAAEUROWNorth9%19%6%31%35%Northeast12%33%4%27%24%Southeast14%30%9%24%23%South14%25%6%28%27%Midwest4%5%4%61%26%Regional Share in National Exports by Destination (1999-2001)MercosurNaftaRest of FTAAEUROWNorth1%4%5%7%8%Northeast13%9%4%7%7%Southeast51%63%69%52%54%South33%23%20%26%27%Midwest2%1%2%8%4%The EFES-ARG ModelType of modelNationalCGESectors42Products80PrimaryfactorsLabor andcapitalSource of products7Users9Benchmark year1997Model useComparative staticNumber of equations454.008Number of variables465.441Impacts of Economic Integration•Haddad et al. (2001)•Three FTA scenarios (member countries eliminate tariffs among themselves but maintain individual tariff schedules on imports for non-member countries )–FTAA–Mercosur/European Union–Generalized bilateral agreements•Shocks were given in both the appropriate tariff and export tax variablesSummary of Results•FTAA:–lower GDP impact–favors manufacturing: traditional (textiles, clothing and shoes) and technology-intensive sectors (transport equipment)•European Union:–higher GDP impact–favors agriculture•Generalized bilateral agreements:–higher growth impact–more diversified export list–“balanced growth”Regional (State) Impacts•Brazilian economy is not homogeneous internally => differential impacts across space•Is integration likely to increase/decrease regional inequality?•Implications for resource allocationSummary of Results•Export effects of the less developed states are relatively higher•From the spatial point of view, the three strategies generate concentration of the economic activityFTAA:Impact on Activity Level, Brazilian States (in %)EU:Impact on Activity Level, Brazilian States (in %)•Factors that contribute to a better overall performance of the economies of the South and Southeast:–a) higher value-added content in the exports by the states in the region;–b) higher degree of trade openness of the state economies of the South and Southeast regions;–c) the pattern of interregional integration at the sub-national level and the operation of feedback effects, as the state interdependence generates leakages from the less developed to the more developed regions.Final Remarks•Would the other states be fated to an archaic structure of trade, based on the export of less elaborated products directed to specific markets?•Would the likely regional concentration pattern of international trade flows be irreversible, once liberalization points to the strengthening of this phenomenon?•Complex dynamic general equilibrium process, whose effects expand in the long run (technology, learning, externalities, political economy, and political agreements)•The role of interregional trade to the state economies should not be relegated to a secondary placeIf Brazilian states were individual independent countries, willing to grant most-favored nation status to their main trade partners, what countries would receive the special treatment?Brazilian States’ Main Trade Partners•The future is not only tied with its ability to compete in the international export market, but also with its articulation with other domestic markets•Repercussion in the sub-national space can be redirected by public policies