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Industrial targeting in free trade areas with policy independence

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Author Info
Earl L. Grinols
Peri Silva

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Abstract

We investigate the limits of a mechanism for free trade area (FTA) formation that simultaneously satisfies internal industrialization targets. For arbitrary targets, we find necessary and sufficient conditions that guarantee that the mechanism is efficient for member countries individually, even if other members do not implement the efficient policy. When the objective is conservative - designed to protect the level of industrialization previously achieved by the target industry - member countries are guaranteed gains from the efficient policy and their FTA participation. The analysis covers cases with transportation costs and explains why minimally restrictive rules of origin support efficiency and policy independence.

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File URL: http://economics.ca/cgi/xms?jab=v41n3/CJEv41n3p0796.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 41 (2008)
Issue (Month): 3 (August)
Pages: 796-816
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Handle: RePEc:cje:issued:v:41:y:2008:i:3:p:796-816

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Find related papers by JEL classification:
D60 - Microeconomics - - Welfare Economics - - - General
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration

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This page was last updated on 2009-11-25.

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