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Preferential Trade Liberalization: The Traditional Theory and New Developments

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  • Arvind Panagariya

Abstract

This paper begins by systematically developing the "static" theory of preferential trade areas (PTAs) and showing that neither a large volume of initial intra-union trade nor geographical proximity can serve as a guide to welfare enhancing PTAs. The paper then discusses the modern literature addressing welfare effects of simultaneous division of the world into many PTAs, the impact of the decision to form a PTA on external tariffs and the "dynamic" time-path question of whether PTAs are building blocks or stumbling blocks towards multilateral freeing of trade. A final section discusses key theoretical considerations in the empirical evaluation of PTAs.

Suggested Citation

  • 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.
    • Handle: RePEc:aea:jeclit:v:38:y:2000:i:2:p:287-331
    Note: DOI: 10.1257/jel.38.2.287
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    References listed on IDEAS

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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