Andean group economic integration : the case of the nitrogenous fertilizer industry

IN PARTICULAR, THE EFFECTS OF ECONOMIC INTEGRATION IN A CUSTOM"S UNION CONTEXT ARE ANALYZED IN TERMS OF COSTS OF PROCESSING AND DISTRIBUTING NITROGENOUS FERTILIZERS, PLANT LOCATIONS AND CAPACITIES, AND TRADE PATTERNS. RESULTS ARE ALSO USED TO EVALUATE ALTERNATIVE PROTECTION POLICIES FOR IMPORTING COUNTRIES. THE TRANSSHIPMENT FORMULATION OF THE GENERAL LINEAR PROGRAMMING MODEL WITH A COST MINIMIZATION OBJECTIVE FUNCTION IS USED AS THE BASIC ANALYTICAL TOOL. SOLUTIONS FOR BOTH THE CUSTOM"S UNION SITUATION AND THE SIX COUNTRIES BEHAVING INDEPENDENTLY UNDER PROTECTION WERE CLAIMED FOR THE SUPPLY AND DEMAND SITUATIONS EXPECTED TO EXIST IN THE YEARS 1975, 1980, AND 1985. ECONOMIC INTEGRATION IN THE FORM OF A CUSTOM UNION RESULTS IN NET "WELFARE GAINS" IN TERMS OF LOWER COSTS OF PROCESSING AND DISTRIBUTING FERTILIZERS OF 3.5, 6.5, AND 6.5 MILLION DOLLARS FOR 1975, 1980, AND 1985, RESPECTIVELY. THE EVALUATION OF TARIFFS, QUOTAS, SUBSIDIES, AND SUBSIDY-TARIFF COMBINATIONS AS ALTERNATIVE PROTECTION POLICIES IN COLOMBIA, ECUADOR, AND PERU SHOWS THAT FOR THE PURPOSE OF LOWER FERTILIZER PRICES IN THE PROCESS OF ECONOMIC INTEGRATION, A DIRECT SUBSIDY IS THE PREFERRED POLICY. TO SOLVE THE PROBLEM OF LACK OF GOVERNMENT REVENUES, CONSIDERATION SHOULD BE GIVEN TO A MIXED SUBSIDY-TARIFF POLICY.