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Free-Trade Areas and Welfare: An Equilibrium Analysis

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  • Yi, Sang-Seung

Abstract

This paper examines the welfare effects of the formation of a free-trade area. When a country is constrained to charge lower tariffs on imports from some countries, it is in its interest to reduce external tariffs as well. In a linear-quadratic model of intraindustry trade, the reduction in external tariffs induced by free-trade agreements is sufficiently large to make nonmember countries better off. Since only privately beneficial free-trade agreements are signed voluntarily, the formation of a free-trade area is a Pareto improvement. Owing to free-riding problems, however, the global free-trade area may not be a stable outcome. Copyright 2000 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 8 (2000)
Issue (Month): 2 (May)
Pages: 336-47

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Handle: RePEc:bla:reviec:v:8:y:2000:i:2:p:336-47

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Cited by:
  1. Taiji Furusawa & Hideo Konishi, 2003. "Free Trade Networks," Working Papers 2003.55, Fondazione Eni Enrico Mattei.
  2. Taiji Furusawa & Hideo Konishi, 2005. "Free Trade Networks With Transfers," The Japanese Economic Review, Japanese Economic Association, vol. 56(2), pages 144-164.
  3. Mario Larch , & Wolfgang Lechthaler, 2011. "Whom to Send to Doha? The Shortsighted Ones!," Kiel Working Papers 1695, Kiel Institute for the World Economy.
  4. Yildiz, Halis Murat, 2012. "Hub and Spoke Trade Agreements under Oligopoly with Asymmetric Costs," MPRA Paper 36501, University Library of Munich, Germany, revised 07 Feb 2012.
  5. Macho-Stadler & Licun Xue, 2006. "Winners And Losers From The Gradual Formation Of Trading Blocs," Departmental Working Papers 2006-27, McGill University, Department of Economics.
  6. MACHO-STADLER, Inés & XUE, Licun, 2005. "Does Free Trade Benefit All?," Cahiers de recherche 13-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  7. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
  8. Ornelas, Emanuel, 2012. "Preferential trade agreements and the labour market," ILO Working Papers 469183, International Labour Organization.
  9. Howard J. Wall, 2002. "Has Japan been left out in the cold by regional integration?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 25-36.
  10. Mukunoki, Hiroshi, 2004. "On the optimal external tariff of a free trade area with internal market integration," Japan and the World Economy, Elsevier, vol. 16(4), pages 431-448, December.
  11. Kawabata, Yasushi & Yanase, Akihiko & Kurata, Hiroshi, 2010. "Vertical trade and free trade agreements," Journal of the Japanese and International Economies, Elsevier, vol. 24(4), pages 569-585, December.
  12. Ornelas, Emanuel, 2005. "Trade creating free trade areas and the undermining of multilateralism," European Economic Review, Elsevier, vol. 49(7), pages 1717-1735, October.
  13. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
  14. Noritsugu Nakanishi, 2011. "Farsightedly Stable FTA Structures," Discussion Papers 1114, Graduate School of Economics, Kobe University.
  15. Daniel E. May, 2008. "Is Bilateralism Consistent with Global Free Trade?," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 137-152, August.

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