Economic Integration and Unemployment in Mercosur

Abstract

This paper quantifies the interdependence in labor markets that exists in the Mercosur countries. Two sets of panel data are constructed: one formed by the aggregation of annual time series data from Argentina and Brazil, and another with data from Uruguay and Paraguay. These two sets of data are used to estimate a Var model that includes the following variables: economic growth, real effective exchange rates, and unemployment rates. Another Var is estimated including the change in the wage levels in place of the unemployment rates. The results indicate that strong cross border effects ensue between countries such that national unemployment rates drop in response to shocks of economic growth and devaluation in other member countries. The paper ends with a series of recommendations on the design of regional stabilization policies.• JEL Classification:F15, F42

Economic Integration in Latin America

“…Based on results obtained from the VAR model the study does not support a monetary union in Latin America even though Uruguayan economic activity depends mainly on Argentinian and Brazilian business cycles. Caceres (2011), on the other hand, provides evidence of interdependence in the labor markets of Mercosur countries and supports the idea of deeper integration for the benefit of lowering the unemployment rates of the member countries.…”