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Preferential Trade Arrangements and the Pattern of Production and Trade when Inputs are Differentiated

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  • Joseph Francois

Abstract

This paper is concerned with rules of origin when intermediate goods are differentiated. An analytical model emphasizes trade patterns and the relative importance of trade in intermediates given trade preferences. Econometric evidence based on intra-OECD trade in motor vehicles and motor vehicle parts points to a systematic impact of trade costs and FTA membership, following from rules of origin and reduction in border measures, on the role of intermediates and their relative importance in production and trade. These results are consistent with a conceptual framework involving rules-base trade costs and two-way trade in differentiated intermediate goods and final goods.

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Bibliographic Info

Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp86.

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Date of creation: 15 Dec 2005
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Handle: RePEc:iis:dispap:iiisdp86

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Keywords: rules of origin; trading costs; trade in intermediates; industry location;

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  1. Markusen, James R. & Rutherford, Thomas F. & Hunter, Linda, 1995. "Trade liberalization in a multinational-dominated industry," Journal of International Economics, Elsevier, vol. 38(1-2), pages 95-117, February.
  2. Lopez-de-Silanes, Florencio & Markusen, James R. & Rutherford, Thomas F., 1994. "Complementarity and increasing returns in intermediate inputs," Journal of Development Economics, Elsevier, vol. 45(1), pages 101-119, October.
  3. Arvind Panagariya & Rupa Duttagupta, 2003. "Free Trade Areas and Rules of Origin," IMF Working Papers 03/229, International Monetary Fund.
  4. Francois, Joseph, 1998. "Scale Economies and Imperfect Competition in the GTAP Model," GTAP Technical Papers 317, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  5. Rod Falvey & Geoff Reed,, . "Economic Effects of Rules of Origin," Discussion Papers 97/21, University of Nottingham, CREDIT.
  6. Bhagwati, Jagdish & Panagariya, Arvind, 1996. "The Theory of Preferential Trade Agreements: Historical Evolution and Current Trends," American Economic Review, American Economic Association, vol. 86(2), pages 82-87, May.
  7. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 287-331, June.
  8. Joseph F. Francois & Douglas Nelson, 2002. "A Geometry Of Specialisation," Economic Journal, Royal Economic Society, vol. 112(481), pages 649-678, July.
  9. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  10. Baldwin, Richard, 2000. "Regulatory Protectionism, Developing Nations and a Two-Tier World Trade System," CEPR Discussion Papers 2574, C.E.P.R. Discussion Papers.
  11. Jiandong Ju & Kala Krishna, 1998. "Firm Behavior and Market Access in a Free Trade Area with Rules of Origin," NBER Working Papers 6857, National Bureau of Economic Research, Inc.
  12. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 1996. "Economic implications for Turkey of a customs union with the European Union," Policy Research Working Paper Series 1599, The World Bank.
  13. Kala Krishna & Anne Krueger, 1995. "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," NBER Working Papers 4983, National Bureau of Economic Research, Inc.
  14. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
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Cited by:
  1. Georges, Patrick, 2008. "Toward a North American customs union: Rules of origin liberalization matters more than a common external tariff for Canada," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 304-318, December.
  2. Patrick Georges, 2009. "Dispensing with NAFTA Rules of Origin? Some Policy Options for Canada," Working Papers 0904E, University of Ottawa, Department of Economics.

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