How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR

Preferential Trading Arrangements (PTAs) are an integral and enduring part of the multilateral trading regime. Between 1990 and 1999, 87 PTAs were notified to the World Trade Organization (WTO), and nearly all signatories of the WTO are currently members of at least one PTA. Despite such widespread existence, concerns continue about the welfare effects of PTAs, especially on excluded countries. The effects of PTAs on the volume and quantities of trade are studied quite frequently but, as Winters (1997a, b) argues, these variables are not a reliable guide to welfare effects for non-member countries. The latter are more directly related to price effects, and of these little is known. Indeed, there is, to our knowledge, only one published ex post study of the price effects of a PTA on its trading partners: Winters and Chang (2000).