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Trade Agreements vs. Unilateral Tariff Reductions: Evidence from Modeling with a Continuum of Goods

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  • Conway, Patrick J
  • Appleyard, Dennis R
  • Field, Alfred J, Jr

Abstract

The relative merits of preferential trading agreements and unilateral tariff reduction are investigated, yielding the conclusion that preferential agreements are superior for plausible specifications of tastes and endowments. The attractiveness of agreements, however, depends crucially on general-equilibrium effects on intraunion and external terms of trade. Game-theoretic differences between the alternative policy strategies are emphasized: agreements are cooperative equilibria while unilateral action defines a noncooperative Stackelberg equilibrium. The analytical framework is a three-country variant of the Dornbusch-Fischer-Samuelson classical trade model. Numerical simulations also illustrate that agreements may enhance government revenue and "learning-by-doing." Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Conway, Patrick J & Appleyard, Dennis R & Field, Alfred J, Jr, 1989. "Trade Agreements vs. Unilateral Tariff Reductions: Evidence from Modeling with a Continuum of Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 775-794, November.
    • Handle: RePEc:ier:iecrev:v:30:y:1989:i:4:p:775-94
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    Cited by:

    1. Joachim Stibora & Albert de Vaal, 2015. "Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 239-270, May.
    2. Stibora, Joachim & de Vaal, Albert, 2006. "Does preferential trade benefit poor countries? A general equilibrium assessment with nonhomothetic preferences," Economics Discussion Papers 2006-6, School of Economics, Kingston University London.
    3. Carsten Kowalczyk, 1990. "Welfare and Customs Unions," NBER Working Papers 3476, National Bureau of Economic Research, Inc.
    4. Albert de Vaal & Joachim Stibora, 2006. "Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences," DEGIT Conference Papers c011_057, DEGIT, Dynamics, Economic Growth, and International Trade.

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