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Industrial targeting in free trade areas with policy independence

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  • Earl L. Grinols
  • Peri Silva

Abstract

We investigate the limits of a mechanism for free trade area (FTA) formation that simultaneously satisfies internal industrialization targets. For arbitrary targets, we find necessary and sufficient conditions that guarantee that the mechanism is efficient for member countries individually, even if other members do not implement the efficient policy. When the objective is conservative - designed to protect the level of industrialization previously achieved by the target industry - member countries are guaranteed gains from the efficient policy and their FTA participation. The analysis covers cases with transportation costs and explains why minimally restrictive rules of origin support efficiency and policy independence.

Suggested Citation

  • Earl L. Grinols & Peri Silva, 2008. "Industrial targeting in free trade areas with policy independence," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 796-816, August.
    • Handle: RePEc:cje:issued:v:41:y:2008:i:3:p:796-816
    DOI: 10.1111/j.1540-5982.2008.00486.x
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    Cited by:

    1. Earl Grinols & Peri Silva, 2011. "Rules of origin and gains from trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 159-173, May.

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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