The Region as a Platform to the World.DOC

The Region as a Platform to the World Alessandro Nicita Marcelo Olarreaga Isidro Soloaga June, 2001 Preliminary Please not cite without permission Abstract: An argument often advanced, when discussing the benefits of regional integration in Latin America, is that the formation of a larger market may serve as a platform for (potential) exporters to world markets Not only economies of scale and learning by doing, when facing a larger demand may allow firms to become more competitive, but information about customs procedures, required design of export products and firm reputation is generated through exports to the regional market The knowledge acquired in the regional market can then be used to penetrate more distant markets outside the regional agreement The evidence for the Southern Cone Common Market (Mercosur) is mixed Results suggest that the region was an important “classroom” for Argentina and Brazil’s exporters, but not for the small members of Mercosur (Uruguay and Paraguay) JEL: F12, F13, F14, F15 Keywords: Exports, Regional Integration, Information Spillovers, Mercosur  We are grateful to Kala Krishna, Jaime de Melo and participants at the “Leitner Conference on Political and Economic Aspects of Regional Integration” at Yale University, April 7-8, 2000 for very helpful comments The views expressed here are those of the authors and not necessarily those of the institutions to which they are affiliated  Development Research Group (DECRG), The World Bank, 1818 H Street, NW, Washington DC 20433, e-mail: anicita@worldbank.org  DECRG, The World Bank, and CEPR, London, e-mail: molarreaga@worldbank.org  DECRG, The World Bank and University of Maryland, e-mail: isoloaga@worldbank.org “We cannot continue alone Soon we will have to open up to the whole Americas and our traders will not have gained the necessary experience to be successful.” Roberto Henriquez (Vice-minister of Foreign Trade, Panama in Financial Times, February 2000) Introduction Information barriers in terms of product quality, customs procedures, foreign market tastes and ways of doing business are among the most important problems that exporters face (Evans, 1999 and Raff and Kim, 1999) Building reputation and trust in a foreign market seems to be as, if not more important, than in domestic transactions Even in countries with a well developed judiciary system, an important share of what makes a successful business deal will typically lie outside the contract established by the two trading partners (McLaren, 1999) The quality of these international business relationships will determine the export success of a firm A recent literature looks at the contribution of social and ethnic networks to overcome these informational barriers by helping to match buyers and sellers across international borders and serving as a deterrent for opportunistic behaviour (Rauch and Casella, 1998, Rauch, 1999 or Rauch and Trinidade, 1999) In addition, repeated interactions with foreign importers will help exporters overcome these barriers More importantly, a successful business relationship may generate important information spillovers beyond the two trading partners On the demand side, importers may use other importers, who have had direct experiences with the potential suppliers, as a source of information on the performance of potential exporters (World Bank, 1989) On the supply side, a successful exporter may generate demonstration effects for other firms, which become aware of potential opportunities in foreign markets These information spillovers may not be limited to national borders Potential importers may look at the performance of a potential future supplier in a third country to decide future transactions Also export activities with one particular country generate a better understanding of consumer tastes and customs administrations in similar countries (Nicita and Olarreaga, 2000) International social or ethnic networks may also help transmit information about successful business oportunities to third countries (Rauch, 1999) One of the repeated justifications for regional integration efforts, in the Western Hemisphere in particular, is based on these types of arguments Exporters may obtain sufficient experience in the regional market, which could then be used as a platform for international export expansion (Devlin and French-Davis, 1999) The region can serve as a “class-room” for potential exporters, where they learn “how to export” and create reputation as reliable suppliers.1 From a policy perspective, in the presence of export information spillovers, regional trade agreements may create sufficiently large gains to compensate for possible trade-diverting effects The objective of this paper is to try to find some evidence of the presence of “exportinformation spillovers” in the case of Mercosur member countries (Argentina, Brazil, Paraguay and Uruguay) More precisely, increases in market share within the regional market allow exporters to improve their export performance in the rest of the world through information spillovers? In the empirical section, to capture information flows among countries, we use the value (in real terms) of total trade in newspapers and periodicals (SITC 8922) between countries These includes trade oriented papers such as the Journal of Commerce (US), Export Channel (US), Made for export (Europe), Asian Channel (Hong Kong), Gazeta Mercantil Latinoamericana (in Mercosur countries) but also journals, magazines and Another important branch of the literature has been interested on whether export activities allow firms to become more productive Contrary to popular presumptions, little evidence has been found for developed (Bernard and Jensen, 1999) and developing (Clerides, Lach and Tybout, 1998) countries This literature concludes that highly productive firms self-select into export activities, which explains that exporting firms are more productive than non-exporting firms Note that these not rule out the presence of spillover effects into other firms (or other markets), as found by Clerides et al (1998) periodicals It has several advantages over the more traditionally used measure of distance.2 First, it allows for size effects The amount of information between Mercosur countries and Mexico is larger than the amount of information between Mercosur countries and Honduras, though the distance between them is very similar Second, it allows to control for cultural factors such as language and colonial links Information flows between Mercosur countries and Spain are much larger than between Mercosur countries and South Africa, though the latter is closer to Mercosur than Spain To capture the export-information flows, we weigh bilateral newspaper trade by the market share at the tariff line that Mercosur exporters have in the regional market, which serves as an indicator of their performance in a particular product in the regional market Figure illustrates how export information spillovers at period t-1 (the kink and dash arrows in figure 1) affect export of a Mercosur country to third markets (the partner) at period t (the large horizontal arrow) The export performance of a Mercosur country (call it “0”) in other Mercosur members markets or the ROW at period t-1 will be transmitted to a third market through information flows (e.g., trade in newspapers) and consumers in third markets will learn about the export performance of country exporters At the same time exporters in country “0” will learn more about consumer tastes in the third market when exporting to countries with which the third market has significant information flows (the dash arrows) These information flows (the kink and dash arrows) will in turn positively affect export flows of country to the third market at period t To anticipate results, we found that Argentina and Brazil’s (the large members of Mercosur) exporters benefit from information spillovers to penetrate third markets both from within Mercosur and from outside Mercosur export performance However, export information spillovers appeared to be larger when the original export market is Mercosur Both spillovers from Mercosur and from the rest-of-the-world (ROW) increase after In another context, Portes and Rey (1999) measure information flows using the amount of bilateral telephone calls between two countries This also corrects for the drawbacks of distance However, in our context, we believe that trade in newspapers is more likely to generate spillovers than private phone calls Rauch and Trindade (1999) use the share of common ethnic population to capture these information flows, but focus only on chinese ethnic networks as a source of information flows Given our problem we would need a matrix of all bilateral ethnic networks in the world, which is not available to our knowledge Moreover, trade flows of newspapers are likely to be correlated with bilateral shares of foreign population 1991 On the other hand, for Paraguay and Uruguay (the small members of Mercosur) exporters, information spillovers were larger when originating in ROW countries, and the creation of Mercosur in 1991 tend to reduce rather than increase the effect of export information spillovers on the export performance of Paraguay and Uruguay to ROW countries Thus, we can only identify a “platform” effect for the larger members of Mercosur The rest of the paper is structured as follows Section describes the evolution of both intra and extra-Mercosur exports from 1980 to 1998 Section focuses on the empirical model, whereas section presents the results Section concludes Evolution of intra and extra-Mercosur exports in the 1990s The Treaty of Asunción led to the creation of a regional market among Argentina, Brazil, Paraguay and Uruguay, called Mercosur (The Southern Cone Common Market) in 1991 By January 1995 a quasi-customs union was in place, with 75 percent of tariff lines subject to a common external tariff and 97 percent of tariff lines set at zero among trading partners.3 Intra-Mercosur exports have been growing much more quickly than extra-Mercosur exports (26 and percent) Note that this is not inconsistent with our story as information spillovers are certainly going to be stronger within the region, and is probably just the reflection of tariff preferences On the other hand, we observed an acceleration of Mercosur exports to the ROW in the late 90s The average growth of Mercosur exports to the rest of the world in the early 1990s was 0.9 percent (1990-1993) to be compared with a 9.1 percent annual increase during the period 1994-1998 This suggests an acceleration of the rate of integration of Mercosur exporters into world markets consistent with the “region as a platform” hypothesis However, before rushing into conclusions, one needs The exempted sectors being computer products, telecommunication equipment, automobiles and sugar for which special regimes have been negotiated and convergence to a full customs union should be achieve by 2005 to control for determinants of export flows, such as size of bilateral markets, demand conditions, cultural links, etc A recent study of the effects of regionalism on aggregate exports to the ROW using a gravity-type approach concludes that the creation of Mercosur had no effects on exports to third countries (Soloaga and Winters, 1999) If instead of using aggregate exports, we focus on exports of industrial products the picture is also different Moreover, keeping in mind the objective of the paper, information spillovers are likely to be more important for products in which Mercosur members not have a “natural” comparative advantage and have not already acquired a significant reputation and know-how in world markets (World Bank 1989) Table provides the average export growth of industrial products of all Mercosur members to other Mercosur members and to the rest of the world for two periods: 1980-1991 (preMercosur) and 1981-1998 (post-Mercosur) Intra-Mercosur export growth of industrial products has significantly increased and reaches an impressive 26 percent annual increase for the period 1991-1998 (compared to an annual –3 percent for the period 1980-1991) The contrast with the evolution of industrial exports to the ROW is striking The growth of Mercosur exports of industrial products to the ROW has declined from percent in 1980-1990 to percent in 1991-1998 This evolution is also consistent across Mercosur countries The decline in export growth of industrial products to the ROW is consistent with the tariff preferences that are granted for within Mercosur trade, but puts some doubts on the “Mercosur as a platform” hypothesis However, Mercosur exports to the ROW have continued to increase (with the exception of Uruguay) as shown in figure Moreover, to be able to capture “platform”-type effects it is necessary to go beyond aggregate data In the next section we develop an empirical model to try to identify at the product level platform-type effects linked to information spillovers The empirical model This is somewhat consistent with Rauch (1999) proposition that asymmetric information in international trade is more costly for differentiated products The basic model draws on Nicita and Olarreaga (2000) They show within a simple model with linear demands, constant marginal transport and production costs, and internationally segmented markets that in the presence of cross-country spillovers on the demand or supply side, market equilibrium implies that exports of product p to country c at time t are given by: x p , c ,t  p , c ,t   d c   s p , c ,t    N c ,t  S p ,t  (1) where x p , c , t are country O (the source country) exports of product p to country c at time t;  p , c ,t is the “potential” size of country c market for product p at time t (this is measured as total imports of country c of product p at time t); d c is distance from country O to country c;   is the constant marginal transport cost; s p , c ,t  is country O market share of product p in total imports of country c in the previous period and   captures “own market” effects The idea is that the larger the market share of country O in country c total imports in period t-1, the larger are going to be exports of country O to country c in period t Thus, as in Farrell (1986), or Froot and Kemplerer (1989), past market shares determine future demand (and in equilibrium supply) Own-market effects partly include export-information spillovers within the two bilateral trading partners, but may also capture hysteresis effects as in Baldwin (1988) or Baldwin and Krugman (1989) The last term in (1) is the one we are interested in this paper It captures information spillover effects across countries: N c ,t  is a vector of newspaper trade between country c and all other export markets of country O; S p ,t  is a vector of country O market share in all of its trading partners at period t-1, and  captures the importance of export information spillover across countries on country O export performance To capture the potential platform effect of intra-Mercosur trade on exports to the ROW, we first take country O as being one of Mercosur members and country c as ROW countries We further decompose the third term in (1) into two A first element that captures the information spillovers that intra-Mercosur trade creates on exports to the ROW and a second element that captures information spillovers among ROW markets Equation (1) becomes: Row x p , c ,t  p , c ,t   d c   s p , c ,t    M N tM S pM,t    Row N tRow  S p , t  (2) M where S p ,t  is a vector containing the market share of country O (i.e., a Mercosur M member) exports on other Mercosur members total imports; N t-1 is a vector of other Row Mercosur countries share in total trade of newspapers of country c;5 N t  is a vector of Row the share of newspaper trade between country c and ROW countries and S p ,t  is a vector of country O export market share in each ROW countries.6 Thus,  M will capture Mercosur platform effects for Mercosur member exports to the ROW through information spillovers regarding export performance within the Mercosur market, whereas  Row captures the effect of Mercosur member’s performance in ROW countries on their exports to third countries The estimation of information spillovers (  ) through equation (2) may be biased by the absence of some other important variables, or that are related to comparative advantage aspects or other types of externalities that are absent in (2) To control for these, we add three variables to the right hand side of (2) First, bilateral trade preference and cultural links may affect our estimates and to capture this we introduce gravity, which is the total exports of the source country to country c (purged of product p exports to country c) It can also be interpreted as capturing all the explanatory variables of a gravity equation for each Mercosur member (including regional trade agreements with ROW countries) It may also be seen as across products own market effects Second comparative advantage aspects may also affect our measure of information spillovers (in some products our The normalization in terms of shares allow us to interpret the information flow, as the probability of observing information flows among countries To proxy for information flows, we also used distance and total trade between partners instead of newspaper trade in the empirical section Results were robust to the use of different information proxies source country may be a “natural exporter” and in others not) and to control for this we introduce ca , which is defined as total exports to the rest of the world., denoted ca (again purged) Third, we also control for possible within sector (and country) externalities by taking the share of bilateral exports at the industry level on total imports of country c at the industry level and denote it industry Finally, regarding the Mercosur “platform” effect, given that Mercosur was created only in 1991 and that data is available from 1980 we introduced two “dummies” to measure the marginal effect of the creation of Mercosur in 1991 on the information spillover effects from Mercosur and from ROW countries These variables are constructed as M M M Row Row Row follows: p ,t  T1, 1991 N t  S p ,t  and p ,t  T1, 1991 N t  S p ,t  where T1, 1991 takes the value if t 1991 and otherwise.7 3.1 Data Trade data is obtained from United Nations Comtrade Data Base for the period 19801998 at the 3-digit level of the SITC classification For each of the Mercosur exporting countries we only use data on products that have been exported at least once during the period 1980-1998 to at least one market The ROW is composed of 54 countries that represent on average over the period more than 85 percent of rest-of-the- world trade All trade data is adjusted to 1997 US dollars (units are thousands of 1997 US dollars) The bilateral distance matrix is calculated using distance between capitals of different countries, provided by Volcano software For variable construction see the appendix 3.2 Econometric specification The equation to be estimated is a stochastic version of equation (2) which includes the control variables described above The non-existence of Mercosur exports in many products across trading partners leads to a large presence of zeroes in the endogenous variables To correct for this bias introduced by censoring we use a Two-Stage Tobit technique (Maddala, 1983, p.221-222): On a study of the dynamic effects of trade integration, Freund and McLaren show that the actual trade flows in Mercosur started changing to years before the agreement was signed These anticipation effects will not be captured by our variables x p ,c,t  x*p ,c ,t   , if x*p ,c ,t  , if x*p , c ,t 0 Row and x*p , c ,t  p , c ,t   d c   s p , c ,t    M N tM S pM,t    Row N tRow  S p , t   (3) 1 gravityc ,t   ca p ,t   2digc ,t   pM, c ,t    5pRow ,c ,t   Time   p ,c ,t where Time is a time dummy introduced to control for general trends in Mercosur members exports to the ROW;  p , c ,t  c   p , c ,t is an error term containing a random country effect to control for other export market countries characteristics.8 The first step of the estimation procedure consist in estimating the probability density function (pdf) of each observation and its probability of occurrence (i.e., being non-zero) using a Probit estimator where the endogenous variable takes the value if an export flow is observed an zero otherwise In the second stage, we weight each observation by its probability of occurrence and include the pdf as an explanatory variable to obtain the unconditional equation for x p , c ,t An interesting feature of the two-stage procedure is that in the first step of the estimation we will observe the effect of information flows spillovers across countries on the probability of observing a trade flow in the next period Finally, given that each regression contains a large number of observations (more than 65 thousand), it will be difficult to perform a detailed analysis of influential observations To make it tractable, we exclude from the estimations any observations that when run over the whole sample had a standardised error above 2.5 This procedure never eliminated more that percent of the observations on each tail of the error distribution Fixed effect may yield inconsistent estimates when using the two-stage tobit method or in the presence of spatial effects (i.e., spillovers across countries) as discussed by Anselin (1988) As suggested by Maddala (1983) and unlike Heckman (1976) we include the non-zero observations in the second stage Results Table reports results of the estimation of equation (3) for Argentina and Brazil using a Two-Stage Tobit technique Table reports results for the smaller members of Mercosur (Paraguay and Uruguay) In the case of small members results of the second-stage are obtained using a simple tobit The reason for this is that given the large presence of censored data for small members (Paraguay 97 percent and Uruguay 89 percent), the two-stage approach yields inefficient results.10 In the case of Argentina, it appears that export information spillovers originating in either Mercosur or ROW not seem to significantly affect the probability of exporting to a third market Moreover, the creation of Mercosur has not led to a change in these regimes Similarly, export information spillovers not seem to affect the level of exports to third countries in the case of Argentina until 1991 However, the creation of Mercosur has led to an increase in export-information spillovers originating within the market The explanation of this change in regime could be due to the general interest that the signature of the Mercosur agreement created in the region In the case of Brazil, export information spillovers originating in Mercosur increase the probability of exporting to a third market, but tend to decrease it when they originate in ROW countries The creation of Mercosur has led to an increase in both Mercosur and ROW based information spillovers The same pattern can be observed for the level of exports to third countries Again, it appears that the creation of Mercosur has led to a change in regime, which could be explained by a larger interest in the ROW on Mercosur activities from 1991 In the case of Paraguay, exports information spillover originating in Mercosur seem to increase the probability of exporting to the ROW, but information spillovers originating 10 Results using two-part models also yield consistent results, but efficiency measured in terms of R or tstatistics Leung and Yu (1996) argued using Monte-Carlo evidence that in data sets with high degree of censoring the two-step estimator may be inefficient when compared to two-part models In our data set, this does not seem to be the case (note that our two-step procedure includes the non-zero observations as suggested with Maddala (1983), whereas Leung and Yi (1996) use Heckman’s procedure 10 in the ROW have a statistically insignficant effect on exports to third countries The creation of Mercosur in 1991 increase the effect that information spillovers originating in Mercosur countries have on the probability of exporting to third countries, but have no effect on exports information spillovers originating in ROW The level of exports is positively affected by information spillovers originating in both Mercosur and ROW and the creation of Mercosur in 1991 had no effect on the information spillovers originating in Mercosur, but decrease information spillovers originating in ROW The explanation for this last phenomenon may be linked to the general re-orientation of Paraguay’s exports to the Mercosur market, as the large members of Mercosur can absorbed an significant share of Paraguay’s exports at preferential tariffs For Uruguay, the estimates describe a very similar picture to Paraguay’s experience Information spillovers originating in Mercosur increase the probability of exporting and the level of exports to third markets Spillovers originating in the ROW also increase the level of exports to third markets The creation of Mercosur in 1991 had no effect on either the probability or the change in the level of exports to third markets due to information spillovers To summarise, it seems from the estimates reported in tables and that the creation of Mercosur had a positive and statistical significant effect on the changes in the level of exports attributed to information spillovers only for the large members of Mercosur (Argentina and Brazil) This change in regime can be partly explained by a general increase in ROW interest in the region following the creation of Mercosur in 1991 In the case of the small members (Paraguay and Uruguay), there is evidence of the presence of export information spillovers both from within the Mercosur market and from the ROW, but the creation of Mercosur in 1991 has apparently not yield a platform effect.11 To capture the size of the information spillovers effect we will need to calculate the implicit elasticities, given that the regressions are not log-linear These is done in the next section 11 If anthing, the creation of Mercosur in 1991, has reduced the effect that export information spillovers from the ROW had on Paraguay’s level of exports to third countries 11 4.1 Has the creation of Mercosur led to a platform effect? It is argued above that export information spillover from Mercosur countries have help exporters in Mercosur members to further penetrate ROW markets However, to argue that Mercosur has a platform effect it is necessary to show that the information spillover effects emanating from Mercosur markets are larger than spillover from ROW markets into third countries Using the estimates of the probit regressions we can calculate the effect that a percent increase in export information spillovers has on the probability of a product being exported to a particular market For this we need to scale our estimated coefficients  J  by the probability at the mean of x p ,c ,t being observed, denoted  (in the case of Argentina,  0.39 ; Brazil,  0.30 , Paraguay,  0.04 and Uruguay  0.14 ) This is done for two sub-period 1980-1990 and 1991-1998 Calculated effects are reported in table for each Mercosur member and sub-period Results suggest that export information spillovers originating either in Mercosur or in ROW countries increase the probability for all Mercosur members of exporting a particular product to a particular The creation of Mercosur strengthen this effect for export information spillovers originating in Mercosur (except for Uruguay) For export information spillovers originating in the rest-of-the world the creation of Mercosur tend to decrease them, with the exception of Brazil, where in the period 1991-1998, the effects of both ROW and Mercosur based export information spillovers are identical On average (for all Mercosur members and periods) a percent increase in information spillovers is associated with a 04 percent increase in exports to ROW Table 4, however does not necessarily indicate that the level of Merocosur exports to the ROW has benefitted from this effect For this we need to calculate the effect that a percent increase in information spillovers from both Mercosur and ROW has on the level 12 of exports of each Mercosur member to third countries These are calculated at the mean of the sample:12 x p ,c ,t x  J J J N J S J   N S  p ,c ,t x N J S J (4) where a “bar” denotes the mean of the variable for each sub-period and superscript J=M, Row Table reports results of this calculation There is a striking difference between Argentina and Brazil, on the one hand, and Paraguay and Uruguay on the other For Argentina and Brazil export information spillovers are much larger when originating within the Mercosur region, both before and after 1991 The creation of Mercosur has increased the effects of export information spillover for both exports originating within Mercosur and in the ROW However, the increase has been much larger for spillovers originating within Mercosur In Argentina for example, a percent increase in information spillovers in the period 1991-1998 led to an increase in exports to the ROW through information spillovers of 2.63 percent, whereas in the period 1980-1990 the figure was 89 percent In Brazil the effect was multiply by with the creation of Mercosur Thus there is evidence for the larger members of Mercosur, that the region has been used as a platform for further penetrating new and existing ROW markets For Paraguay and Uruguay, export information spillovers originating in the ROW were much larger than export information spillovers originating in Mercosur for the period 1980-1990 The creation of Mercosur has led to an increase of Paraguay exports information spillovers originating in Mercosur, but a decline in Uruguay It has also decrease the effects of exports information spillovers originating in the ROW for Paraguayan exporters For both countries the net effect of the creation of Mercosur was to reduce exports information spillovers Thus, in the case of the smaller members the region has not been used as platform to further penetrate ROW markets This may reflect 12 For the simple tobit estimation we need to multiply the coefficients by 13  to obtain the marginal effects the fact that the small members on average cannot satisfy the demand for their exports in the large members and therefore not use the region as platform but rather as a market that could absorb their entire exports.13 Conclusions It has often been advanced, when discussing the benefits of regional integration in Latin America, that regional markets may allow regional producers to develop the necessary experience, reputation and know-how to increase their exports to the ROW This paper explores the idea that this “platform” effect could be linked to information spillovers Information regarding the export performance (and reliability) in the regional market becomes available in other countries which increases demand for the regional products Similarly, export activities in the regional market allow exporters to learn more about consumer tastes in foreign markets and necessary customs procedures which are helpful when exporting to ROW markets Evidence for Mercosur members, suggest that these effects were indeed important for the large members of Mercosur (Argentina and Brazil), and that they increase in 1991 with the signature of the Mercosur agreement A percent increase in export information spillovers originating in Mercosur led to a 05 percent increase in exports to the ROW in the case of Brazil, and 04 in the case of Argentina For the small members of Mercosur, the evidence suggests that the creation of Mercosur had had no (statistically) significant effect at best and may have actually reduced the effect that information spillovers had on exports to the ROW 13 One may wonder why there exists different regimes for ROW and Mercosur information spillovers A possibility is that there are some thresholds for information spillovers to have any effect 14 References: Anselin, Luc (1988), Spatial Econometrics: Methods and Models, Kluwer Acadmeci Publishers Baldwin Richard (1988), “Hysteresis in import prices: the beachhead effect”, American Economic Review 78:4, 773-85 Baldwin 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p ca p ,t  x p ,c ,t  x p ,c ,t c ; sizec , p ,t mcT, p ,t  x p ,c ,t ; T where mc , p ,t is defined as total imports of country c of product p at time t; x 2dig  m p ,c ,t   x p ,c ,t  T p ,c ,t   mTp ,c ,t  p2 d ; p2 d where 2d includes all the tariff lines within the same 2-digit category of the SITC classification; sc , p ,t   xc , p ,t  mcT, p ,t  ; The element j of the vector of information flows, N c ,t  , are defined as: nc , j ,t    c , j ,t   c, j ,t  j where  c , j ,t  is the bilateral trade flow (exports + imports) of newspapers between country c and country j; N c ,t  S p ,t   s j , p ,t  nc , j , p ,t  j c 18 Table 1: Mercosur export growth of industrial products a Argentina Row b M c 1980-1990 03 02 1991-1998 02 22 Brazil Row M 05 -.07 02 25 a Paraguay Row M 13 -.02 00 16 Export growth is measured in constant dollars Row stands for growth of Mercosur exports to the ROW c M stands for growth of exports to other Mercosur members b 19 Uruguay Row M 00 01 -.03 09 Mercosur Row M 03 -.04 07 25 Table 2: Measuring Mercosur export platform effect for large Members a Argentina Constant  p ,c ,t Size of market dc Distance s p , c ,t  Own-market effect N cM, t S pM, t Mercosur spillover Row N c,tRow S p,t Row spillover pM, c ,t >1991 Mercosur spill pRow ,c,t >1991 Row spillover ca Comp Advantage Gravity Gravity type effect 2dig Industry spillovers Time Time dummy R2 # observations % censored obs Brazil Probit -.19 (.16) 5.3e-7*** (6.0e-8 ) 2-Stage -160* (86.7) 0002*** (.0003) Probit -.23* (.13) 1.3e-6*** (1.2e-7 ) 2-Stage -2692 (2121) 003*** (.0009) -7.9e-5*** (1.3e-5 ) -0.0002 (0.02) -4.3e-5*** (1.1e-5 ) -0.12* (0.07) 10.5*** (1.6) 7092*** (759) 4.1*** (.49) 14222*** (4615) 2.27 (1.45) 2528 (2862) 5.94*** (2.10) 11544** (5441) 88 (.59) -1138 (764) -2.66*** (.49) -3978 (3857) 4.47 (4.18) 12586*** (3716) 26.2*** (9.61) 18048*** (1967) 46 (.77) 1355 (950) 4.40*** (1.09) 25391** (10068) 1.4e-6*** (1.4e-7 ) 4.0e-6*** (1.5e-6 ) 2.23** (0.98 ) 001*** (.0002) 003*** (.0004) 1003*** (355) 6.5e-7*** (6.2e-8 ) 4.1e-7 (3.1e-7 ) 1.75** (0.79) 006*** (.0007) 003*** (.0001) -736 (2155) 0.03*** (3.5 e-3 ) 0.22 90519 62 -4.67 (8.48) 0.26 90519 62 0.007*** (0.003) 0.17 91368 65 -56.68*** (13.95) 0.45 91368 65 _ a Figures in brackets are standard errors corrected for country-specific random effects and heteroscedasticity using a Generalized-Huber correction procedure;.*** is for significance at percent; ** is for significance at percent level and * at the 10 percent level The R2 is McFadden pseudo- R2 20 Table 3: Measuring Mercosur export platform effect for small Members Paraguay Constant  p ,c ,t Size of market dc Distance s p , c ,t  Own-market effect N cM, t S pM, t Mercosur spillover Row N c,tRow S p,t Row spillover pM, c ,t >1991 Mercosur spill pRow ,c,t >1991 Row spillover ca Comp advantage Gravity Gravity type effect 2dig Industry spillovers Time Time dummy R2 # observations % censored obs Probit -2.04*** (.15) 2.0e-8** (8.7e-9 ) -3.8e-5** (1.2e-5 ) a Uruguay Tobit -3032*** (781) 2.1e-5*** (7.8e-6) -0.05** (0.02) Probit -1.23*** (.17) 1.2e-7*** (1.6e-8 ) Tobit -4870* (16652) 0001*** (.0001) -5.6e-5*** (1.7e-5 ) -0.17** (0.07) 56.7*** (10.4) 10727*** (4234) 70.1*** (4.90) 29121** (13431) 2.92** (1.45) 4556** (2075) 3.40*** (1.14) 6156* (3559) 9.44 (7.44) 21262* (11249) 8.56 (5.60) 40844* (24767) 2.34* (1.34) 5168 (3234) 1.99 (2.01) -2390 (2588) 91 (10.1) -21420** (9576) 54 (2.40) 1097 (13581) 7.6e-5*** (5.0e-6 ) 5.5e-5*** (9.9e-6 ) 3.77*** (1.17 ) 09*** (.03) 09*** (.01) 4895** (2876) 1.1e-5*** (8.1e-7 ) 1.2e-5*** (2.3e-6 ) 15.1*** (4.15 ) 0.02*** (.005) 0.20 65428 97 24.06*** (7.7) 0.09 65826 97 0.01*** (0.003) 0.21 85091 86 04*** (.01) 0.04*** (.0007) 21087** (10516) 34.48*** (12.9) 0.07 85531 89 _ a Figures in brackets are standard errors corrected for country-specific random effects and heteroscedasticity using a Generalized-Huber correction procedure;.** is for significance at percent level and * at the 10 percent level Note that estimator of the second-stage is done through a simple tobit procedure, given that the fit of a generalized tobit was relatively bad given the significant percentage of censoring 21 Table 4: Impact of percent increase in information spillovers on the probability of exporting to ROWa Argentina 89 Brazil 1.78*** Paraguay 12** Uruguay 48*** Spillover Before 1991 Row market spillover 34 -.80*** 38 1.19 Before 1991 Mercosur market 2.63 9.64*** 21* 76 Spillover After 1991 Row market spillover 52 52*** 41 1.27 Mercosur market After 1991 _ a The entries are calculated using sample means, the estimated coefficients in tables and 3, the scaling factor for marginal effects in probit estimations and equation (4) in the text Stars indicate the level of statistical significance of the estimated coefficients Table 5: Impact of percent increase in information spillovers on the level of exports to ROWa (percent) Mercosur market Spillover Before 1991 Row market spillover Before 1991 Mercosur market Spillover After 1991 Row market spillover Argentina 01 Brazil 02*** Paraguay 03*** Uruguay 07* -.00 -.09 16* 23* 04*** 05*** 07 04 00 05*** 00** 24 After 1991 _ a The entries are calculated using sample means, the estimated coefficients in tables and and equation (4) in the text Stars indicate the level of statistical significance of the estimated coefficients 22 Figure 1: The Role of Information Spillovers for Export Performance Partner Country Information Spillovers at t-1 Rest of the World Information Spillovers at t-1 Export Information Spillovers at t-1 Rest of Mercosur Flows Export Export at t-1 at t-1 Mercosur Country 23 Information Spillovers at t-1 Figure 2: MERCOSUR exports to the region and to the rest of the world 25000 15000 Rest of the World Mercosur 1991 Mercosur 10000 5000 Year 24 19 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 80 Million US$ 20000 ... in the 1990s The Treaty of Asunción led to the creation of a regional market among Argentina, Brazil, Paraguay and Uruguay, called Mercosur (The Southern Cone Common Market) in 1991 By January... this last phenomenon may be linked to the general re-orientation of Paraguay’s exports to the Mercosur market, as the large members of Mercosur can absorbed an significant share of Paraguay’s... the region as platform but rather as a market that could absorb their entire exports.13 Conclusions It has often been advanced, when discussing the benefits of regional integration in Latin America,