A Supply-Side Theory of International Economic Institutions for the Mercosur

This chapter proposes a theoretical framework for understanding the formation and the development of the Mercosur. Its main proposition is that the Mercosur is an attempt by political elites in Argentina and Brazil to gain credibility for their trade policies and to recast the role of the private sector in the economies of these countries. The theoretical framework through which this perspective will be explored is based on a theory of international economic institutions that underscores the supply-side of institutional formation. The supply of an international institution, in this sense, emphasizes how politicians create organizations based on common rules and sanctioning procedures so that they may attain important policy goals that would have been impossible without the instruments and mechanisms an international institution could provide. 1 In this sense, the goals of Argentine and Brazilian politicians throughout the evolution of the Mercosur have been essentially domestic: to gain political credibility for major economic reform programs (in light of a history of unstable economic policy-making) and to recast the role of the private sector to suit the needs of open economies.