Regional Trading Arrangement: Natural or Super-Natural?
AbstractThis paper summarizes recent research by the authors on the effects of free trade areas (FTAs). Within our model, which emphasizes inter-continental transport costs, several conclusions arise. (1) FTAs are likely to be detrimental over a moderate range of parameter values, even if drawn along natural regional lines. (2) A small margin of preferences for neighbors is beneficial. (3) Optimal preferences depend on the parameters, particularly on transport costs. (4) If preferences are raised further, they enter the zone of negative returns to regionalization, and eventually the super-natural zone, where welfare is lower than under the MFN status quo. Estimates from the gravity model suggest the world system may already be in the super-natural zone. The core model leaves out many factors. But we have pursued a variety of extensions by now. Perhaps the two most important are generalizing the highly stylized model of trade (to include factor endowments), and relaxing the assumption that the inter-bloc level of tariffs remains fixed. In the latter case, allowing tariffs to be endogenous yields a much more optimistic outlook for the effects of FTAs.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5431.
Date of creation: Jan 1996
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Publication status: published as American Economic Review, Vol. 86, no.2 (May 1996).
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Other versions of this item:
- Frankel, Jeffrey A & Stein, Ernesto & Wei, Shang-Jin, 1996. "Regional Trading Arrangements: Natural or Supernatural," American Economic Review, American Economic Association, vol. 86(2), pages 52-56, May.
- Jeffrey A. Frankel, Ernesto Stein, and Shang-Jin Wei., 1996. "Regional Trading Arrangements: Natural or Super-Natural?," Center for International and Development Economics Research (CIDER) Working Papers C96-059, University of California at Berkeley.
- F1 - International Economics - - Trade
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- Shang-Jin Wei & Jeffrey A. Frankel, 1998.
"Open Regionalism in a World of Continental Trade Blocs,"
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- Antonio Spilimbergo & Ernesto H. Stein, 1996. "The Welfare Implications of Trading Blocs among Countries with Different Endowments," IDB Publications 6860, Inter-American Development Bank.
- Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
- Wonnacott, Paul & Wonnacott, Ronald, 1981. "Is Unilateral Tariff Reduction Preferable to a Customs Union? The Curious Case of the Missing Foreign Tariffs," American Economic Review, American Economic Association, vol. 71(4), pages 704-14, September.
- Jeffrey A. Frankel, 1998. "The Regionalization of the World Economy," NBER Books, National Bureau of Economic Research, Inc, number fran98-1, octubre-d.
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