VDM Verlag ECONOMIC INTEGRATION: IMPACTS AND ALTERNATIVE RESPONSES: IN BRAZIL'S NORTHEAST

The Impacts of Economic Integration in Brazil's Northeast are evaluated using a static, long run, general equilibrium model of trade with Armington and small country assumptions to identify sectoral impacts. The model includes six aggregated sectors: grains, non-grains, food, minerals, and machinery and five regions/countries: Northeast Brazil, Brazil, Mercosul, Alca and the rest of the world. The simulations performed included: the reduction of trading barriers based on the Mercosul agenda, including the elimination of tariffs among Mercosul member countries and stipulation of common external tariffs; the formation of a free trade area of the Americas-Alca and the maintenance of a uniform exchange rate overvaluation on a customs union scenario. Results indicate improved trade balance for Mercosul and change in sectoral contributions to gross regional product, with loses for the mineral sector and gains for the machinery and the Northeast textile sectors. This pattern is strongest for the tariff reduction scenarios. In terms of exchange rate overvaluation the losers are agricultural export producers.