Exploring the characteristic of recent trade flows between MERCOSUR and the EU

Montevideo- Punta del Este

Seminario; IX Arnoldshain Seminar; 2009

International Society for Comparative Econoimic Studies

This paper reexamines the commercial relationship between the MERCOSUR and the EU through an export demand function for the period 1980-2004. While at an aggregate level exports react moderately to relative prices, their reaction with respect to trade competitor?s prices is important. Besides, trade partner?s income adversely affects trade and the absorption effect seems to be absent. The average long-run price and income elasticities suggest the EU not to be an attractive destination for MERCOSUR exports. The paper also estimates an export demand function for some sectors that may be of great significance to revert this situation and to strength trade relations between both regions. The preliminary estimate of the error correction model appears to predict some difficulties for a quick adjustment of variables to long run equilibrium.