Evaluation of the economic welfare gains from reducing trade administration costs in Mercosur

Abstract

This paper evaluates potential welfare gains in the Mercosur region from improvements to trade administration. Streamlined border procedures and related processes could save billions, open markets for exporters, and promote trade diversification. Using a microeconomic model with country-specific trade elasticities, we compare the trade cost structures of Mercosur member states to those of Chile and Canada. The analysis distinguishes between land and sea borders, highlighting cost differences in these trade mediums. A unique case - the Argentinian export tax regime - is examined, revealing welfare losses from this tax that outweigh the benefits of reducing Argentina's trade costs. Our estimates suggest that if Mercosur's trade administration costs were reduced to the levels of the reference countries, the region could gain over USD 15 billion annually. This work underscores the substantial economic benefits of improved trade facilitation in the region.