Patterns of Intra-Industry Trade

From its start, MERCOSUR raised a number of questions about the distribution of the gains and costs of integrating. This was a highly problematic issue on which views diverged considerably. Scholars, for instance, usually approached it in the classic terms of trade creation and trade diversion. Policy-makers and economic actors in turn were rather concerned with the existence of large divergences in economic structure and policy among member countries. In practice, however, the two views pointed to the same issue, namely, the risk of an inefficient reallocation of resources and consumption. This risk was made evident on more than one occasion, when abrupt fluctuations in regional parities, due to divergencies in monetary and exchange policies, caused the trade pattern to deviate from the optimal one associated to tariff elimination. These distortions impacted allocative efficiency negatively by increasing inter-country disparities in firms’ competitiveness and unnecessarily amplifying the extent of industrial adjustment.