Intertemporal General Equilibrium Effects of a Regional Trade Agreement on Third-Country

A multi-region and multi-sector intertemporal general equilibrium model is constructed to study MERCOSUR regional trade agreement effects on its member countries as well as on a non-member country, the United States. By taking into account both transitional and steady state adjustments, simulation results show that tariff reductions initiated by MERCOSUR have positive effects on U.S. production, trade, and investment, but are quite small as U.S. economy is much larger than that of MERCOSUR. lf tariffs are eliminated bilaterally between U.S. and MERCOSUR, the gains from trade liberalization are much greater in terms of intertemporal social welfare, domestic investment, international trade and growth. JEL Classification: O41, F11.