Different Paths To Free Trade: The Gains From Regionalism

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Different Paths To Free Trade: The Gains From Regionalism

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Caroline Freund

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Caroline Freund

Abstract

We compare free trade reached through expanding regional trading blocs to free trade accomplished by multilateral negotiation. With sunk costs, the outcomes are different. Trade in an imperfectly competitive good flows disproportionately more between the original members of a regional agreement even after free trade is reached. They secure a higher welfare level from regionalism than from free trade achieved multilaterally; nonmembers, however, reach a lower welfare level. A surprising result is that world welfare during free trade is greater when it is achieved by the regional path. We conclude with some empirical evidence from the European Union that is consistent with the model. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 115 (2000)
Issue (Month): 4 (November)
Pages: 1317-1341
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Handle: RePEc:tpr:qjecon:v:115:y:2000:i:4:p:1317-1341

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Philippa Dee, 2005. "The Australia–US Free Trade Agreement: An Assessment," Trade Working Papers 611, East Asian Bureau of Economic Research. [Downloadable!]
Taiji Furusawa & Hideo Konishi, 2003. "Free Trade Networks," Working Papers 2003.55, Fondazione Eni Enrico Mattei. [Downloadable!]
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- Taiji Furusawa & Hideo Konishi, 2002. "Free Trade Networks," Boston College Working Papers in Economics 548, Boston College Department of Economics, revised 08 Sep 2003. [Downloadable!]
- Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July. [Downloadable!] (restricted)
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- Jong-Wha Lee & Innwon Park & Kwanho Shin, 2008. "Proliferating Regional Trade Arrangements: Why and Whither?," The World Economy, Blackwell Publishing, vol. 31(12), pages 1525-1557, December. [Downloadable!] (restricted)
Céline CARRERE, 2007. "Regional Agreements and Welfare in the South: When Scale Economies in Transport Matter," Working Papers 200726, CERDI. [Downloadable!]
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- Céline CARRERE, 2005. "Regional Agreements and Welfare in the South:When Scale Economies in Transport Matter," Working Papers 200513, CERDI. [Downloadable!]
Richard Baldwin, 2007. "Multilateralising Regionalism: Sphagetti Bowls as building Blocs on the Path to Global Free Trade," Working Papers id:1231, esocialsciences.com. [Downloadable!]
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- Baldwin, Richard, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," CEPR Discussion Papers 5775, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Richard Baldwin, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," NBER Working Papers 12545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Richard E. Baldwin, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," The World Economy, Blackwell Publishing, vol. 29(11), pages 1451-1518, November. [Downloadable!] (restricted)
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- Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Meredith A. Crowley, 2003. "An introduction to the WTO and GATT," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 42-57. [Downloadable!]
Caroline L. Freund & Diana Weinhold, 2000. "On the effect of the Internet on international trade," International Finance Discussion Papers 693, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Theo Eicher & Christian Henn & Chris Papageorgiou, 2008. "Trade Creation and Diversion Revisited: Accounting for Model Uncertainty and Natural Trading Partner Effects," IMF Working Papers 08/66, International Monetary Fund. [Downloadable!]
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- Theo Eicher & Christian Henn & Chris Papageorgiou, 2007. "Trade Creation and Diversion Revisited: Accounting for Model Uncertainty and Natural Trading Partner Effects," Working Papers UWEC-2007-18, University of Washington, Department of Economics. [Downloadable!]
Theo S. Eicher & Christian Henn, 2008. "In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly," Working Papers UWEC-2008-22, University of Washington, Department of Economics. [Downloadable!]
Baldwin, Richard & Rieder, Roland, 2007. "A Test of Endogenous Trade Bloc Formation Theory on EU Data," CEPR Discussion Papers 6389, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Itai Agur, 2007. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Economics Working Papers ECO2007/17, European University Institute. [Downloadable!]
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- Itai Agur, 2008. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Global Economy Journal, Berkeley Electronic Press, vol. 8(3). [Downloadable!]
Malhotra, Nisha & Stoyanov, Andrey, 2008. "Analyzing the Agricultural Trade Impacts of the Canada-Chile Free Trade Agreement," Working Papers 46628, Canadian Agricultural Trade Policy Research Network. [Downloadable!]

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