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This chapter applies the new heterogeneous firm CGE model of Caliendo and Parro (2009) to determine what the Ricardian gains are from changing partners for members of a trade bloc. We focus on the MERCOSUR case, using a model with 48 sectors and 5 countries. Motivated by recent policy discussions, we quantify Uruguay's trade and welfare effects from signing a Free Trade Agreement with the United States and leaving MERCOSUR. We find positive welfare effects for Uruguay from bilaterally reducing tariffs with the United States. Most of the gains come from having access to lower-cost intermediate inputs for production. We then consider the policy experiment of bilaterally eliminating tariffs between all members of MERCOSUR and the United States. We find that Uruguay has the largest gains, while Argentina and Brazil do not benefit much. This chapter also illustrates how new models are a promising tool for the analysis of trade.

This study analyzes the perceptions of export obstacles to the Mercosur by top executives of Brazilian companies located in the state of Riode Janeiro. Differences in perceptions were studied in order to determine to what extent they were associated with industry type, firmsize, export experience and geographic scope of export activities. Self‐administered questionnaires were sent to top executives of Rio de Janeiro companies that had recently exported to Mercosur countries. A total of 69 companies returned the questionnaire, representing a total response rate of 50.36 per cent. Data were analyzed using factor analysis and stepwise linear discriminant analysis. Results confirmed the hypothesized relationships.

The purpose of this study is to examine two issues, namely the degree of current account deficit (CAD) sustainability and the degree of capital mobility.

The sample for this study comprises 24 Latin American and Caribbean countries, including three regional agreements: Andean Community, MERCOSUR (Mercado Común del Sur), and SICA (Central American Integration System). This study employs the dynamic common correlated effects mean group (DCCEMG) estimator in a panel data set to investigate the long-run relationship between savings and investment along with short-run dynamics.

The findings indicate that CAD is weakly sustainable in the Latin American and Caribbean region, MERCOSUR, and SICA, while CAD is strongly unsustainable in the Andean Community. The sub-period analysis reveals that CAD has been adversely affected by the 2008 crisis. However, in the post-crisis period, CAD has been slowly decreasing in the Latin American and Caribbean region and Andean Community, whereas CAD has continued increasing in MERCOSUR and SICA. Further, the estimates of error-correction terms and short-run coefficients indicate that the Andean Community and MERCOSUR observe a higher degree of long-run and short-run capital mobility than SICA.

The results carry fundamental implications for policy-making processes aimed at maintaining sustainable CADs.

This study gives an alternative interpretation of the “Feldstein-Horioka” coefficient in terms of CAD sustainability and analyses the saving–investment relationship in light of Chudik and Pesaran (2015).

The purpose of this paper is to answer one important question: in the aftermath of a systemic banking crisis, can the expected deviations in credit supply, liquidity, and other bank characteristics become entrenched in that they do not converge back to “normal”?

Using a panel data set of commercial banks in the Mercosur during the period 1990-2006, the authors analyze the impact of crises on four sets of financial indicators of bank behavior and outcomes – profitability, maturity preference, credit supply, and risk taking. The authors employ convergence methodology – which is often used in the growth literature – to identify the evolution of bank behavior in the region after crises.

A key finding of the paper is that bank risk-taking behavior is significantly modified leading to prolonged reduction of intermediation to the private sector in favor of less risky government securities and preference for high levels excess liquidity well after the crisis. This can be attributed to the role played by macroeconomic and institutional volatility that has nurtured a relatively high level of risk aversion in banks in the Mercosur.

To the best of the authors’ knowledge, using convergence methodology is a relatively novel approach in this area. An added advantage of using this approach over others currently used in the literature is that the authors can empirically quantify the rate of convergence and the institutional and macroeconomic factors that condition the convergence. Moreover, the methodology allows one to identify – in some hierarchical order – factors that condition persistent deviation from “normality.” The lessons learned from the Mercosur case study are useful for countries that suffered systemic banking crises in the aftermath of the global financial crisis.

The purpose of this paper is to explore, using the conceptual frameworks of psychic distance and resource-based view, how Brazilian firms resolve strategic dilemma. Brazilian firms face a strategic dilemma about whether to diversify and exploit the rapidly growing markets of China or to protect and expand the established markets of the Greater Mercosur region. The strategic responses of Brazilian business to business firms are examined within the context of internationalization decisions.

The paper takes a qualitative approach to study the decisions taken by Brazilian firms to deal with the strategic dilemma arising from competitive developments in domestic and regional markets.

Findings support four hypotheses based on the psychic distance and resource-based view frameworks. However, the fifth hypothesis that trust would be an impediment for establishing business in China for Brazilian firms was not supported. Trust did not appear as a concern for Brazilian businesses.

Two practical implications can be drawn from the findings. First, Brazilian firms have to consider whether they have made themselves vulnerable to attacks from Chinese firms in the Greater Mercosur region by not aggressively entering the Chinese markets. Second, they also have to understand whether their lack of strong presence in the Chinese markets has resulted not only in lost opportunities but also in making it difficult for them to enter the market later.

The paper takes a multi-theoretical approach to provide insights into the international business expansion decisions of firms in a major economy in the Greater Mercosur region. It contributes to the growing literature on firms in emerging economies. By adopting a qualitative approach to study the research questions, the paper provides insights into the behaviors of firms confronting strategic tradeoffs.