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Mercosur appears as an interesting case study for analyzing the determinants of exceptions in regional trade agreements. Its member countries-Argentina, Brazil, Paraguay, and Uruguay-intended to make Mercosur a full customs union by January 1995. This goal turned out to be too ambitious, and the Protocol of Ouro Preto and other agreements signed in December 1994 led to a hybrid solution. Overall, out of a total of 9,119 tariff lines, around 30 percent are subject, in at least one member country, to either external deviations from the common external tariff or internal deviations from free trade. Thus an important set of holes remains under the existing agreement, leading some authors to consider Mercosur an incomplete customs union. This article compares the results of the theoretical literature on endogenous tariff formation with evidence from Mercosur. The results show that Mercosur's common external tariff and member countries' deviations from it and from internal free trade can be explained by sector or industry lobbying as predicted by the endogenous tariff literature. If a viable political economy is a key to success, then Mercosur is here to stay. Several analysts argue that regional trade agreements (RTAs) allow for more far-reaching liberalization, in a regional context, than multilateral trade agreements. Some suggest that the North American Free Trade Agreement or the European Community would not have achieved their degree of intrabloc liberalization if member countries had relied on multilateral negotiations because smaller groups find it easier to agree. Although it seems theoretically valid, Hoekman and Leidy (1992) challenge this view on empirical grounds. They argue that the same political forces that block far-reaching liberalization in the multilateral context are also present in regional negotiations and that the outcomes are relatively similar. Mercosur appears as an interesting case study for analyzing the determinants of exceptions ("holes" in Hoekman and Leidy's terminology) in RTAs. Mercosur's

Soloaga and Winters apply a gravity model to data onTrade liberalization efforts in Latin America have had annual nonfuel imports for 58 countries for the years a positive impact on the imports of bloc members 1980-96, to quantify the effects on trade of recently (Andean Group, Central American Common Market, created or revamped preferential trade agreements Latin American Integration Association, and (PTAs).MERCOSUR). Increasing propensities to export They modify the usual gravity equation to identify the generally accompanied increasing propensities to import, separate effects of PTAs on intra-bloc trade, members' suggesting that general trade liberalization had a strong total imports, and members' total exports. They also effect. The exception was MERCOSUR, for which formally test the significance of changes in the estimated import and export propensities displayed opposite coefficients before and after the blocs' formation.movements, with exports performing worse than Their estimates give no indication that the "new wave" expected over the mid-1990s. Although MERCOSUR of regionalism boosted intra-bloc trade significantly.members have undoubtedly liberalized since the mid-They found convincing evidence of trade diversion 1980s, these results suggest that their trade performance only for the European Union and the European Free has been influenced more by competitiveness than by Trade Association. For the same blocs they also observed trade policy. "export diversion," which would be consistent with these blocs' imposing a welfare cost on the rest of the world. This papera product of Trade, Development Research Groupis part of a larger effort in the group to study the effects of regional integration. Copies of the paper are available free from the World Bank,

This article describes the user-written command iop to estimate exante inequality of opportunity for different types of variables. Inequality of opportunity is the part of inequality that is due to circumstances beyond the control of the individual. Therefore, it is the ethically offensive part of inequality. Several estimation procedures have been proposed over the past years, and iop is a comprehensive and easy-to-use command that implements many of them. It handles continuous, dichotomous, and ordered variables. In addition to the point estimates, iop also provides bootstrap standard errors and two decomposition methods.

Spatial agglomeration is a central aspect of human life and of the geographic space in which most economic and social exchanges take place (Bairoch 1988). The size and shape of this geographic space have key implications for policy design, as they affect the regular patterns of mobility and interactions of people, goods, and ideas. This functional reality is weakly captured by the usual political-administrative units. Functional territories, as we call them in this study, represent a complex socio-spatial picture of overlapping markets between "areas or locational entities which have more interaction or connection with each other than with outside areas" (Brown and Holmes 1971, p 57), and with high frequency of economic and social interactions between their inhabitants, organizations, and firms (Berdegué et al. 2011).

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.