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Firm behaviour and market access in a Free Trade Area with rules of origin

  • Jiandong Ju
  • Kala Krishna

We study a Free Trade Area with Rules of Origin and show that there are two distinct regimes. Comparative statics results for the two regimes are exact opposites and a regime switch occurs when become restrictive enough. Consequently, imports into the of the intermediate good first fall and then rise while the opposite pattern occurs for imports of the final good and for the price of the domestic input. We also show that tighter have opposite effects on the well-being of final versus intermediate good producers and producers inside versus outside the FTA.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 38 (2005)
Issue (Month): 1 (February)
Pages: 290-308

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Handle: RePEc:cje:issued:v:38:y:2005:i:1:p:290-308
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Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4

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  1. Krueger, Anne O., 1997. "Free trade agreements versus customs unions," Journal of Development Economics, Elsevier, vol. 54(1), pages 169-187, October.
  2. Lopez, Ramon & Panagariya, Arvind, 1992. "On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs," American Economic Review, American Economic Association, vol. 82(3), pages 615-25, June.
  3. Kyle Bagwell & Robert W. Staiger, 1998. "The Simple Economics of Labor Standards and the GATT," NBER Working Papers 6604, National Bureau of Economic Research, Inc.
  4. Jiandong Ju & Kala Krishna, 1996. "Market Access and Welfare Effects of Free Trade Areas without Rules of Origin," NBER Working Papers 5480, National Bureau of Economic Research, Inc.
  5. J Anderson & J.P. Neary, 1994. "Measuring the Restrictiveness of Trade Policy," CEP Discussion Papers dp0186, Centre for Economic Performance, LSE.
  6. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August.
  7. Lopez, Ramon E. & Rodrik, Dani, 1990. "Trade restrictions with imported intermediate inputs : When does the trade balance improve?," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 329-338, November.
  8. Carsten Kowalczyk, 1990. "Welfare and Customs Unions," NBER Working Papers 3476, National Bureau of Economic Research, Inc.
  9. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
  10. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
  11. Kala Krishna & Anne Krueger, 1995. "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," NBER Working Papers 4983, National Bureau of Economic Research, Inc.
  12. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
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