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The economics of rules of origin


  • Juan RosellOn


Rules of origin of free trade arrangements limit the use of inputs from outside the preferential trade zone. A government negotiating a future FTAcan manipulate these rules in order to achieve national welfare objectives. The correct definition of rules of origin may help to enhance demand for domestically produced goods, promote national technological development, and maximize labour income. This paper proves that a more stringent rule of origin implies an increase of demand for the domestic factor if the substitution effect prevails over the effects caused by the decrease of the scale of operation in the domestic plant, and the reallocation of output between domestic and foreign plants. We further show that policy decisions regarding rules of origin that intertemporally maximize welfare and foster domestic technological evolution should be made at the greatest level of disaggregation that is feasible.

Suggested Citation

  • Juan RosellOn, 2001. "The economics of rules of origin," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 9(4), pages 397-425.
  • Handle: RePEc:taf:jitecd:v:9:y:2001:i:4:p:397-425 DOI: 10.1080/096381900750056849

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    References listed on IDEAS

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    Cited by:

    1. Mizuno, Tomomichi & Takauchi, Kazuhiro, 2013. "Rules of origin and uncertain cost of compliance," MPRA Paper 44431, University Library of Munich, Germany.
    2. MUKONOKI Hiroshi, 2013. "On the Welfare Effect of FTAs in the Presence of FDIs and Rules of Origin," Discussion papers 13053, Research Institute of Economy, Trade and Industry (RIETI).
    3. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.


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