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26/05/2021 10:28

Publicação Preliminar - 2021 - Maio 

Assessing The effects of a free trade agreement between Brazil and India: A general equilibrium approach


Authors: Fernando J. Ribeiro


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This article explores the possible economic effects of a Free Trade Agreement between Brazil and India (and also its Mercosur partners), using a computable general equilibrium approach. Two scenarios were considered, one that applies only tariff reductions (100% reduction for all sectors in both countries, uniformly distributed in a 10-year timeframe, from 2021 to 2030) and another with this same tariff reduction and also a 25% reduction on non-tariff barriers for all sectors, uniformly distributed in the same timeframe. The results were presented as deviations from the baseline scenario, showing the cumulative change until 2035.

The results of the simulations are generally positive for main macroeconomic variables, and there would be significant welfare gains for both Brazil and India, though they would be greater for the second one. Both countries would experiment significant gains of exports and imports – total and bilateral – in a great number of sectors, beyond the traditional ones. As commonly happens in any tariff reducing process, there are winners and losers in terms of sectoral production. In Brazil, there would be a loss of production in the bulk of manufacturing sectors in both scenarios, and the winning sectors would be basically Sugar, Other agricultural and forestry products, Oil and gas and Minerals and metals products. In India, the opposite occurs, with less production in minerals, food and agriculture commodities and gains in labor intensive, but also in capital and technology intensive manufacturing sectors – a mirror image of what happens in Brazil. Finally, bilateral trade would grow at a very fast pace in all sectors, though the FTA would reinforce the current sectoral pattern of concentration of export and import bill in both countries.

Keywords: International trade; trade integration; general equilibrium; Brazil; India.

JEL: F11; F14; F15; F16

JEL codes: I3 D31 I38



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