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Firm behaviour and market access in a Free Trade Area with rules of origin

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  • Jiandong Ju
  • Kala Krishna

Abstract

. We study a Free Trade Area with Rules of Origin and show that there are two distinct regimes. Comparative statics results for the two regimes are exact opposites and a regime switch occurs when ROO become restrictive enough. Consequently, imports into the FTA of the intermediate good first fall and then rise while the opposite pattern occurs for imports of the final good and for the price of the domestic input. We also show that tighter ROO have opposite effects on the well‐being of final versus intermediate good producers and producers inside versus outside the FTA. JEL classification: F13, F15. Comportement de l’entreprise et accès au marché dans une zone de libre échange où existent des règles d’origine. Les auteurs examinent une zone de libre échange (LE) où existent des règles d’origine (RO) et montrent qu’il existe deux régimes distincts. Les résultats en statique comparative sont exactement l’inverse dans l’un et l’autre régime, et il y a renversement quand les RO deviennent suffisamment restrictives. En conséquence, les importations dans la zone de LE du bien intermédiaire chutent d’abord et puis croissent, alors qu’on observe le pattern inverse pour les importations du bien fini et pour le prix de l’intrant de l’intérieur. On montre aussi que des RO plus restrictives ont des effets opposés sur le bien‐être des producteurs de biens intermédiaires et de biens finis, et sur celui des producteurs à l’intérieur et à l’extérieur de la zone de LE.

Suggested Citation

  • Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(1), pages 290-308, February.
  • Handle: RePEc:wly:canjec:v:38:y:2005:i:1:p:290-308
    DOI: 10.1111/j.0008-4085.2005.00281.x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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