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Understanding the Welfare Implications of Preferential Trade Agreements

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  • Kose, M Ayhan
  • Riezman, Raymond

Abstract

This paper examines various implications of preferential trade agreements, namely customs unions and free trade areas, in the context of a multicountry general equilibrium model. The model is calibrated to represent countries with symmetric endowments, and aggregate and disaggregate welfare change measures are used to quantify the welfare effects of preferential trade agreements. It is found that free trade areas are better than customs unions on welfare grounds for the world as a whole. Welfare decompositions suggest that a significant fraction of the welfare changes is explained by the volume-of-trade effect for both types of preferential trade agreements. Copyright 2000 by Blackwell Publishing Ltd.

Suggested Citation

  • Kose, M Ayhan & Riezman, Raymond, 2000. "Understanding the Welfare Implications of Preferential Trade Agreements," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 619-633, November.
  • Handle: RePEc:bla:reviec:v:8:y:2000:i:4:p:619-33
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    Cited by:

    1. Burfisher, Mary E. & Robinson, Sherman & Thierfelder, Karen, 2004. "Regionalism," MTID discussion papers 65, International Food Policy Research Institute (IFPRI).
    2. T. Huw Edwards & John Whalley, 2002. "Short and Long Run Decompositions of OECD Wage Inequality Changes," NBER Working Papers 9265, National Bureau of Economic Research, Inc.
    3. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series 2660, CESifo Group Munich.
    4. M. Ayhan Kose & Raymond Riezman, 2000. "Small Countries and Preferential Trade Agreements "How Severe is the Innocent Bystander Problem?"," CESifo Working Paper Series 253, CESifo Group Munich.
    5. Mukunoki, Hiroshi, 2004. "On the optimal external tariff of a free trade area with internal market integration," Japan and the World Economy, Elsevier, vol. 16(4), pages 431-448, December.
    6. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, University of Warwick - Department of Economics.
    7. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
    8. Kawabata, Yasushi & Yanase, Akihiko & Kurata, Hiroshi, 2010. "Vertical trade and free trade agreements," Journal of the Japanese and International Economies, Elsevier, vol. 24(4), pages 569-585, December.
    9. Howard J. Wall, 2002. "Has Japan been left out in the cold by regional integration?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 25-36.
    10. Philipp J. H. Schröder & Allan Sørensen, 2014. "A Welfare Ranking of Multilateral Reductions in Real and Tariff Trade Barriers when Firms are Heterogenous," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 423-443, August.
    11. Edward, T. Huw & Lücke, Matthias, 2011. "Decompositions of wage inequality and growth in an advanced economy open to trade," Kiel Working Papers 1749, Kiel Institute for the World Economy (IfW).
    12. Ayhan Kose & Christopher M Towe & Guy M Meredith, 2004. "How Has Nafta Affected the Mexican Economy? Review and Evidence," IMF Working Papers 04/59, International Monetary Fund.
    13. Chang, Yang-Ming & Xiao, Renfeng, 2015. "Preferential trade agreements between asymmetric countries: Free trade areas (with rules of origin) vs. customs unions," Japan and the World Economy, Elsevier, vol. 33(C), pages 28-43.

    More about this item

    JEL classification:

    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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