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Do SouthSouth preferential trade agreements undermine the prospects for multilateral free trade?

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  • Paul Missios
  • Halis Murat Yildiz

Abstract

Due to trade diversion, there have been concerns expressed over the proliferation of preferential trade agreements (PTAs) that include South countries. In this paper, we compare welfare across different geographic configurations of bilateral free trade agreements (FTAs) and customs unions (CUs) and examine their implications for the stability of multilateral free trade. While NorthNorth PTAs do tend to yield higher global welfare than SouthSouth PTAs, a single SouthSouth FTA may make free trade more sustainable than any other single agreement. With pre-existing NorthNorth agreements and a large enough cost asymmetry between regions, an additional South member or a new SouthSouth agreement always makes free trade harder to sustain.

Suggested Citation

  • Paul Missios & Halis Murat Yildiz, 2017. "Do SouthSouth preferential trade agreements undermine the prospects for multilateral free trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 111-161, February.
  • Handle: RePEc:cje:issued:v:50:y:2017:i:1:p:111-161
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    References listed on IDEAS

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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