Abstract:
This study presents a conceptual discussion of the risks associated with the Mercosur-European Union agreement when considering long-run structural change. It draws on the literature based on general equilibrium models regarding the effects of trade liberalization on structural transformation - the long-term shift in the sectoral composition of the economy. The article also develops an extension of Matsuyama's (2009) Ricardian model, adding heterogeneity in natural resource endowments across countries. According to the model, in countries with a relative abundance of natural resources, trade liberalization accelerates deindustrialization caused by the Baumol relative price effect. Finally, it presents simulation results available in the literature, with a greater emphasis on Brazil, regarding the Mercosur-European Union agreement's effects based on traditional trade models. The expected benefits are modest, even without including adverse impacts related to the structural change process.
