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Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them?

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  • Masahiro Endoh
  • Koichi Hamada
  • Koji Shimomura

Abstract

PTAs are generally negotiated without any tariff concessions or transfers to non-member countries. Can such a PTA benefit the neighbors’ welfare? In a two-good competitive equilibrium model in the absence of an entrepot, a PTA without concessions to the outsider will hurt the outsider’s welfare when goods are normal. If one of the member countries is an entrepot, however, it definitely improves the neighbors’ welfare. In a multiple-good model, a PTA without concessions deteriorates the neighbors’ welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 122247000000002091.

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Date of creation: 08 Apr 2008
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Handle: RePEc:cla:levarc:122247000000002091

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  1. Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 889-904, September.
  2. Winters, L. Alan & Chang, Won, 2000. "Regional integration and import prices: an empirical investigation," Journal of International Economics, Elsevier, Elsevier, vol. 51(2), pages 363-377, August.
  3. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation during the Formation of Customs Unions," NBER Working Papers 4543, National Bureau of Economic Research, Inc.
  4. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers, Wisconsin Madison - Social Systems 15, Wisconsin Madison - Social Systems.
  5. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation During the Formation of Free Trade Areas," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1048, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Corden, W.M., 1984. "The normative theory of international trade," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 2, pages 63-130 Elsevier.
  7. André Sapir & Jaime de Melo, 1991. "Trade theory and economic reform: North, South and East," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/8084, ULB -- Universite Libre de Bruxelles.
  8. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, American Economic Association, vol. 73(4), pages 606-18, September.
  9. J. N. Bhagwati & V. K. Ramaswami & T. N. Srinivasan, 1968. "Domestic Distortions, Tariffs and the Theory of Optimum Subsidy: Some Further Results," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 29, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004. "A strategic and welfare theoretic analysis of free trade areas," Journal of International Economics, Elsevier, Elsevier, vol. 64(1), pages 1-27, October.
  11. Gordon H. Hanson & Robert C. Feenstra, 2001. "Intermediaries in Entrepot Trade: Hong Kong Re-Exports of Chinese Goods," NBER Working Papers 8088, National Bureau of Economic Research, Inc.
  12. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1985. "The Generalized Theory of Transfers and Welfare: Exogenous (Policy-imposed) and Endogenous (Transfer-induced) Distortions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(3), pages 697-714, August.
  13. Panagariya, Arvind & Krishna, Pravin, 2002. "On necessarily welfare-enhancing free trade areas," Journal of International Economics, Elsevier, Elsevier, vol. 57(2), pages 353-367, August.
  14. Robert C. Feenstra, 1999. "Discrepancies in International Data: An Application to China-Hong Kong Entrepot Trade," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 338-343, May.
  15. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, Elsevier, vol. 6(1), pages 95-97, February.
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