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International Trade, Regional Free Trade Agreements, and Economic Development

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  • Scott L. Baier
  • Jeffrey H. Bergstrand

Abstract

In 1991, Krugman illustrated that natural (regional) free trade agreements (FTAs) are likely to be welfare‐enhancing if intercontinental costs are prohibitively high, but are likely to be welfare‐reducing if such costs are zero. In 1995, Frankel, Stein and Wei extended the analysis to consider positive but nonprohibitive transport costs. This paper extends these models to allow for countries of different economic size. Large countries will tend to have higher relative wages, influencing the relative gains and losses from natural FTAs. For even modest differences in size, intracontinental FTAs are welfare‐enhancing for larger countries, regardless of strong preferences for diversity or low intercontinental transport costs.

Suggested Citation

  • Scott L. Baier & Jeffrey H. Bergstrand, 1997. "International Trade, Regional Free Trade Agreements, and Economic Development," Review of Development Economics, Wiley Blackwell, vol. 1(2), pages 153-170, June.
  • Handle: RePEc:bla:rdevec:v:1:y:1997:i:2:p:153-170
    DOI: 10.1111/1467-9361.00011
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    Cited by:

    1. Swetha Loganathan & Joshy Joseph Karakunnel & Vijay Victor, 2021. "India–European Union Trade Integration: An Analysis of Current and Future Trajectories," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 15(4), pages 484-504, November.
    2. Dragan Miljkovic & Rodney Paul, 2003. "Agricultural trade in North America: Trade creation, regionalism and regionalisation," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(3), pages 349-366, September.
    3. Cosmas S. Mbogela, 2018. "Determinants of Africa - BRIC Countries Bilateral Trade Flows," Economy, Asian Online Journal Publishing Group, vol. 5(1), pages 40-53.

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