Economic integration and development in Latin America: perspectives for Mercosul

Mercosul (the Southern Cone Common Market) was created in the mid-1980s with four members-Argentina, Brazil, Paraguay, and Uruguay. Theoretically, it was supposed to be the start of a regional integration initiative that could eventually evolve into a Union, following the example of the European Union. Economic motivation, however, was not the mainspring of Mercosul. The initiative was devised to approximate the two main economies of the region-Argentina and Brazil-both just emerging from long-lasting military regimes, to provide mutual insurance against new military coups. In fact, the economies of Brazil and Argentina are very similar in structure, which created important obstacles to the development of regional division of labor. The removal of barriers to trade between the two economies has been permanently stalled by the difficulty to allocate activities between them. On the other hand, the smaller members of the initiative-Paraguay and Uruguay-have not found in Mercosul the support for development that they expected. Thus, Mercosul still survives, more than 20 years later, mostly because of its political virtues than because of its economic potentialities. Recent attempts at enlarging Mercosul may create new tensions and eventually threaten its survival.