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Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them?

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  • Endoh, Masahiro
  • Hamada, Koichi
  • Shimomura, Koji

Abstract

PTAs are generally negotiated without any tariff concessions or transfers to non-member countries. Can such a PTA benefit the neighbors’ welfare? In a two-good competitive equilibrium model in the absence of an entrepot, a PTA without concessions to the outsider will hurt the outsider’s welfare when goods are normal. If one of the member countries is an entrepot, however, it definitely improves the neighbors’ welfare. In a multiple-good model, a PTA without concessions deteriorates the neighbors’ welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.

Suggested Citation

  • Endoh, Masahiro & Hamada, Koichi & Shimomura, Koji, 2008. "Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them?," Center Discussion Papers 6334, Yale University, Economic Growth Center.
    • Handle: RePEc:ags:yaleeg:6334
    DOI: 10.22004/ag.econ.6334
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    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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