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A Pareto Improvement in Customs Unions Without Intra-Union Transfer

In: International Trade and Economic Dynamics

Author

Listed:
  • Qi Ling

    (Central University of Economics and Finance)

  • Shimomura Koji

    (Kobe University)

Abstract

Kemp and Wan (1976) proved a theorem on the formation of customs unions: a common tariff vector can be found in the union such that there exists a Pareto improvement in the union without changing the international prices and the purchases from the rest of the world in the associated tariff-ridden competitive equilibrium. However, this Pareto-optimum may imply a tariff-ridden competitive equilibrium with an intra-union income transfer that does not seem to be very realistic. We give a strictly analytical proof to show that under some conditions on the tariff vector, the equilibrium can be established without intra-union income transfer and the utility of every country in the customs union can be improved when the customs union consists of three countries.

Suggested Citation

  • Qi Ling & Shimomura Koji, 2009. "A Pareto Improvement in Customs Unions Without Intra-Union Transfer," Springer Books, in: Takashi Kamihigashi & Laixun Zhao (ed.), International Trade and Economic Dynamics, pages 73-86, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-78676-4_9
    DOI: 10.1007/978-3-540-78676-4_9
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