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Abstract

An intertemporal general equilibrium model of the United States and MERCOSUR is created to analyze the dynamic adjustments in both regions' commodity and capital markets after trade liberalization. Simulation results show that tariff reductions initiated by MERCOSUR have small positive effects on the U.S. production, trade, consumption and investment, and stimulates MERCOSUR's growth, and improves its current account. If tariffs are eliminated by both regions, both regions are better off from points of intertemporal social welfare, international trade, domestic investment, and growth. Agriculture benefits more from trade reform, which implies that ruralagricultural sector might have been a victim of trade protection policies.

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