Convergence Dynamics in Mercosur

Convergence Dynamics in Mercosur

According to the traditional theory of international trade, a gradual opening of trade teamed with migration would make initially asymmetric regions more symmetric. In stark contrast, the new economic geography models show that factor mobility and opening may eventually exaggerates initial differences across regions. The mere possibility that uneven development may arise as a result of larger integration renders interesting analyzing the evolution of income disparities in Mercosur after more than a decade of economic integration. This is the main purpose of this paper. The study indicates that income disparities across Mercosur countries and regions have indeed increased during the 1990s. A preliminary analysis regarding the impact of the creation of Mercosur, however, shows that the integration process might not be at the origin of this trend.