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Do Three Trade Blocs Minimize World Welfare?

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  • Nitsch, Volker

Abstract

Two interesting results have emerged from research on symmetric models that make the analysis of bilateralism tractable. Krugman reported that three trade blocs minimize world welfare. Frankel, Stein, and Wei argued that the formation of continental trading blocs can reduce welfare. This paper shows that these results are not robust. In particular, it is argued that the inclusion of more realistic assumptions into a symmetric model changes the picture considerably. Specifically, if one allows for transportation costs, conventional results are obtained. The phenomenon of three welfare-minimizing blocs and "super-natural" blocs disappears. Copyright 1996 by Blackwell Publishing Ltd.

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  • Nitsch, Volker, 1996. "Do Three Trade Blocs Minimize World Welfare?," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 355-363, October.
    • Handle: RePEc:bla:reviec:v:4:y:1996:i:3:p:355-63
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    Cited by:

    1. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
    2. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
    3. Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc.
    4. Chang, Winston W. & Chen, Tai-Liang & Saito, Tetsuya, 2021. "Formation of symmetric free-trade blocs, optimal tariff structure, and world welfare," Journal of Asian Economics, Elsevier, vol. 77(C).
    5. Kylie Rochford, 2010. "Those who stayed loyal," Journal of Enterprising Communities: People and Places in the Global Economy, Emerald Group Publishing Limited, vol. 4(4), pages 346-371, October.

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