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Why Is Open Regionalism Not Always Good?

Author

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  • Loke, Wai-Heng

    () (University of Nottingham Ningbo China)

  • Winters, L. Alan

    () (University of Sussex)

Abstract

When the Asia Pacific Economic Cooperation (APEC) formally adopted the principle of “open regionalism” (OR) in its trade liberalization in 1991, many were optimistic that this approach suggested the bloc as a stepping stone toward global free trade. This optimistic view was reinforced by the economic theorizing of Sang-Seung Yi (1996). This paper shows formally via a simple model why OR may fail. We unpick Yi (1996) systematically and explain that OR works in his model because of quasilinear preferences and Ricardian technology assumptions. Once these assumptions are replaced with constant lasticity of substitution (CES) preferences and increasing marginal costs, OR fails to ensure global free trade as an equilibrium when the world consists of a country that is sufficiently larger than the rest of the world.

Suggested Citation

  • Loke, Wai-Heng & Winters, L. Alan, 2012. "Why Is Open Regionalism Not Always Good?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 437-465.
  • Handle: RePEc:ris:integr:0580
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    More about this item

    Keywords

    Regional Integration; Equilibrium Coalition Structure; Welfare;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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