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Rules of origin and gains from trade

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Listed author(s):
  • Earl Grinols

    ()

  • Peri Silva

    ()

Abstract

This paper identifies the most restrictive limit that rules of origin can enforce and still continue to guarantee gains from trade area formation in general settings. Many commonly used rules of origin exceed this condition in practise. Second, free trade areas generally involve unharmonized tariffs requiring rules of origin that make standard analyses difficult or inapplicable. We incorporate the identified welfare-supporting rules of origin into standard existence of equilibrium proofs and prove the existence of a free trade area equilibrium involving only within-FTA transfers that is at least as satisfactory for every consumer worldwide as an arbitrary original world for allocation. The analysis explains why hub-and-spoke extensions of free areas cannot guarantee gains from trade for all participants in general.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s00199-010-0529-y
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 47 (2011)
Issue (Month): 1 (May)
Pages: 159-173

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Handle: RePEc:spr:joecth:v:47:y:2011:i:1:p:159-173
DOI: 10.1007/s00199-010-0529-y
Contact details of provider: Web page: http://www.springer.com

Web page: http://saet.uiowa.edu/

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Order Information: Web: http://www.springer.com/economics/economic+theory/journal/199/PS2

Keywords: Rules of origin; Existence of equilibrium; Free trade areas; Walrasian equilibrium; Welfare analysis; D60; F13; F15;

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Find related papers by 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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  1. McKenzie, Lionel W, 1981. "The Classical Theorem on Existence of Competitive Equilibrium," Econometrica, Econometric Society, vol. 49(4), pages 819-841, June.
  2. Kowalczyk, Carsten & Sjostrom, Tomas, 2000. "Trade as transfers, GATT and the core," Economics Letters, Elsevier, vol. 66(2), pages 163-169, February.
  3. Hammond, Peter J & Sempere, Jaime, 1995. "Limits to the Potential Gains from Economic Integration and Other Supply Side Policies," Economic Journal, Royal Economic Society, vol. 105(432), pages 1180-1204, September.
  4. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  5. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
  6. Eric Bond, 2009. "Paths of efficient self-enforcing trade agreements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(1), pages 85-104, October.
  7. Carsten Kowalczyk & Raymond Riezman, 2013. "Free trade: what are the terms-of-trade effects?," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 10, pages 149-164 World Scientific Publishing Co. Pte. Ltd..
  8. Panagariya, Arvind & Krishna, Pravin, 2002. "On necessarily welfare-enhancing free trade areas," Journal of International Economics, Elsevier, vol. 57(2), pages 353-367, August.
  9. Hideo Konishi & Carsten Kowalczyk & Tomas Sjostrom, 2003. "Free Trade, Customs Unions, and Transfers," Boston College Working Papers in Economics 568, Boston College Department of Economics.
  10. Deltas, George & Desmet, Klaus & Facchini, Giovanni, 2006. "Hub-and-Spoke Free Trade Areas," CEPR Discussion Papers 5960, C.E.P.R. Discussion Papers.
  11. Schweizer, Urs & Varaiya, Pravin & Hartwick, John, 1976. "General equilibrium and location theory," Journal of Urban Economics, Elsevier, vol. 3(3), pages 285-303, July.
  12. Grandmont, J. M. & McFadden, D., 1972. "A technical note on classical gains from trade," Journal of International Economics, Elsevier, vol. 2(2), pages 109-125, May.
  13. Krueger, Anne O., 1997. "Free trade agreements versus customs unions," Journal of Development Economics, Elsevier, vol. 54(1), pages 169-187, October.
  14. Earl L. Grinols & Kar-yiu Wong, 1991. "An Exact Measure of Welfare Change," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 428-449, May.
  15. 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.
  16. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
  17. Earl L. Grinols & Peri Silva, 2007. "An enhancement of modern free trade area theory," Oxford Economic Papers, Oxford University Press, vol. 59(2), pages 219-225, April.
  18. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August.
  19. Hideo Konishi & Carsten Kowalczyk & Tomas Sjöström, 2009. "Global Free Trade is in the Core of a Customs Union Game," Review of International Economics, Wiley Blackwell, vol. 17(SI), pages 304-309, 05.
  20. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
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Cited by:

  1. Lutz Arnold, 2013. "Existence of equilibrium in the Helpman–Krugman model of international trade with imperfect competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 237-270, January.
  2. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 139-161, September.
  3. Sung Hee Lee & Kun Soo Park & Yong Won Seo, 2016. "Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation," Sustainability, MDPI, Open Access Journal, vol. 9(1), pages 1-16, December.

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