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Rules of Origin and Gains from Trade

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  • Earl L. Grinols

    (Baylor University)

  • Peri Silva

    ()
    (University of North Dakota and Centro Studi Luca d\'Agliano)

Abstract

This paper identifies the most restrictive limit that rules of origin can enforce and still continue to guarantee gains from trade area formation in general settings. Many commonly used rules of origin exceed this condition in practise. Second, free trade areas generally involve unharmonized tariffs requiring rules of origin that make standard analyses difficult or inapplicable. We incorporate the identified welfare-supporting rules of origin into standard existence of equilibrium proofs and prove the existence of a free trade area equilibrium involving only within-FTA transfers that is at least as satisfactory for every consumer worldwide as an arbitrary original world for allocation. The analysis explains why hub-and-spoke extensions of free areas cannot guarantee gains from trade for all participants in general.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 249.

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Length: 19
Date of creation: 30 Jun 2008
Date of revision:
Handle: RePEc:csl:devewp:249

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Keywords: Rules of origin; free trade areas; Walrasian equilibrium; welfare analysis;

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References

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  1. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  2. Deltas, George & Desmet, Klaus & Facchini, Giovanni, 2006. "Hub-and-Spoke Free Trade Areas," CEPR Discussion Papers 5960, C.E.P.R. Discussion Papers.
  3. Hideo Konishi & Carsten Kowalczyk & Tomas Sjöström, 2009. "Global Free Trade is in the Core of a Customs Union Game," Review of International Economics, Wiley Blackwell, vol. 17(SI), pages 304-309, 05.
  4. Kowalczyk, Carsten & Sjostrom, Tomas, 2000. "Trade as transfers, GATT and the core," Economics Letters, Elsevier, vol. 66(2), pages 163-169, February.
  5. L. W. McKenzie, 2010. "The Classical Theorem on Existence of Competitive Equilibrium," Levine's Working Paper Archive 1388, David K. Levine.
  6. Grandmont, J. M. & McFadden, D., 1972. "A technical note on classical gains from trade," Journal of International Economics, Elsevier, vol. 2(2), pages 109-125, May.
  7. Anne O. Krueger, 1995. "Free Trade Agreements versus Customs Unions," NBER Working Papers 5084, National Bureau of Economic Research, Inc.
  8. Panagariya, Arvind & Krishna, Pravin, 2002. "On necessarily welfare-enhancing free trade areas," Journal of International Economics, Elsevier, vol. 57(2), pages 353-367, August.
  9. Earl L. Grinols & Peri Silva, 2007. "An enhancement of modern free trade area theory," Oxford Economic Papers, Oxford University Press, vol. 59(2), pages 219-225, April.
  10. Carsten Kowalczyk & Raymond Riezman, 2009. "Free trade: what are the terms-of-trade effects?," Economic Theory, Springer, vol. 41(1), pages 147-161, October.
  11. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
  12. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August.
  13. Earl L. Grinols & Peri Silva, 2008. "Industrial targeting in free trade areas with policy independence," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 796-816, August.
  14. Schweizer, Urs & Varaiya, Pravin & Hartwick, John, 1976. "General equilibrium and location theory," Journal of Urban Economics, Elsevier, vol. 3(3), pages 285-303, July.
  15. Hammond, Peter J & Sempere, Jaime, 1995. "Limits to the Potential Gains from Economic Integration and Other Supply Side Policies," Economic Journal, Royal Economic Society, vol. 105(432), pages 1180-1204, September.
  16. Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004. "A strategic and welfare theoretic analysis of free trade areas," Journal of International Economics, Elsevier, vol. 64(1), pages 1-27, October.
  17. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  18. Eric Bond, 2009. "Paths of efficient self-enforcing trade agreements," Economic Theory, Springer, vol. 41(1), pages 85-104, October.
  19. Earl L. Grinols & Kar-yiu Wong, 1991. "An Exact Measure of Welfare Change," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 428-49, May.
  20. Hideo Konishi & Carsten Kowalczyk & Tomas Sjostrom, 2003. "Free Trade, Customs Unions, and Transfers," Boston College Working Papers in Economics 568, Boston College Department of Economics.
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