Economic Integration and Location of Production Activities: The Case of Mercosur

Feb 2004
This research aims at answering the following questions: How do specialization patterns look like in member countries of Mercosur and how have they evolved over time? How do concentration patterns look like and how have they evolved over time? What are the main determinants of locational patterns? Did Mercosur have an impact on location of economic activities? What are the consequences for the smaller countries? Do we see production clusters? We analyse specialization, concentration, and locational patterns in Mercosur using production value data for the period 1971-1998. We identify the determinants of those patterns during the period 1985-1998 using econometric techniques. In addition, we calculate intraindustry trade statistics within Mercosur and with the Rest of the World for the period 1986-2001 in order to investigate the formation of clusters and uncover their determinants. We complement this analysis with a brief description of production developments in border regions with the purpose of determining whether this phenomenon has a specific spatial dimension. Finally, we draw some conclusions about the implications for smaller countries within the bloc and some lessons for upcoming trade initiatives such as a deepening of integration within the region, the establishment of FTAA, and a free trade agreement with the European Union.