Industrial Adjustment, Product Differentiation and Economies of Scale

Abstract

In July 1986, the governments of Argentina and Brazil announced the institution of a broad program of economic cooperation between the two countries (PICEAB [Programa de Integración y Cooperación Económica Argentina-Brasil]) which stipulated, among other objectives, the elimination of all barriers to reciprocal trade over a ten-year period. Successive negotiations brought the deadline for achieving zero tariffs on bilateral trade forward by five years. This chapter examines retrospectively the objectives and instruments established by the PICEAB, drawing on the arguments advanced in recent contributions to trade theory. The focus is on three related issues, namely the extent of the industrial adjustment which would follow the full liberalization of Argentine-Brazilian bilateral trade; the pre-integration level of intra-industry trade in manufactures; and the potential gains from product differentiation and economies of scale which would be produced by the PICEAB.