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Preferential Trade Liberalization: The Traditional Theory and New Developments

  • Arvind Panagariya

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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jel.38.2.287
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Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 38 (2000)
Issue (Month): 2 (June)
Pages: 287-331

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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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  1. Brecher, Richard A & Bhagwati, Jagdish N, 1981. "Foreign Ownership and the Theory of Trade and Welfare," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 497-511, June.
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  4. Fernandez, Raquel & Portes, Jonathan, 1998. "Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements," World Bank Economic Review, World Bank Group, vol. 12(2), pages 197-220, May.
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  8. Bhagwati, Jagdish N, 1971. "Trade-Diverting Customs Unions and Welfare Improvement: a Clarification," Economic Journal, Royal Economic Society, vol. 81(323), pages 580-87, September.
  9. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
  10. 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.
  11. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
  12. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November.
  13. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  14. Andriamananjara, Soamiely, 1999. "On the size and number of regional integration arrangements - a political economy model," Policy Research Working Paper Series 2117, The World Bank.
  15. Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
  16. Berglas, Eitan, 1979. "Preferential Trading Theory: The n Commodity Case," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 315-31, April.
  17. Bhagwati, Jagdish & Greenaway, David & Panagariya, Arvind, 1998. "Trading Preferentially: Theory and Policy," Economic Journal, Royal Economic Society, vol. 108(449), pages 1128-48, July.
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