IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_253.html
   My bibliography  Save this paper

Small Countries and Preferential Trade Agreements "How Severe is the Innocent Bystander Problem?"

Author

Listed:
  • M. Ayhan Kose
  • Raymond Riezman

Abstract

This paper examines the welfare implications of preferential trade agreements (PTAs) from the perspective of small countries in the context of a multi-country, general equilibrium model. We calibrate our model to represent one relatively small country and two symmetric big countries. We consider two cases. In one case, the small country is an 'innocent bystander', that is, it is left out of a PTA between the two large countries. In the second case, the small country signs a PTA with one of the large countries. We simulate the model and calculate consumption allocations, prices, t rade volume, and tariffs in these two cases considering three different equilibria: Free Trade (FT), Free Trade Area (FTA), and Customs Union (CU). We find that free trade is the best outcome for the small country. If the large country PTA takes the for m of a CU then the cost of being an 'innocent bystander' is very large. If it is a FTA then the cost of being an 'innocent bystander' is relatively modest. In fact, the small country prefers to be an 'innocent bystander' to being a member of a FTA with one of the large countries.

Suggested Citation

  • M. Ayhan Kose & Raymond Riezman, 2000. "Small Countries and Preferential Trade Agreements "How Severe is the Innocent Bystander Problem?"," CESifo Working Paper Series 253, CESifo.
  • Handle: RePEc:ces:ceswps:_253
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/WP253.PDF
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Raymond RIEZMAN, 2013. "Customs Unions and the Core," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 3, pages 33-43, World Scientific Publishing Co. Pte. Ltd..
    2. M. Ayhan Kose & Raymond Riezman, 2013. "Understanding the Welfare Implications of Preferential Trade Agreements," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 7, pages 85-99, World Scientific Publishing Co. Pte. Ltd..
    3. John Kennan & Raymond Riezman, 2013. "Optimal Tariff Equilibria with Customs Unions," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 5, pages 53-66, World Scientific Publishing Co. Pte. Ltd..
    4. Raymond Riezman, 1999. "Can Bilateral Trade Agreements Help Induce Free Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 32(3), pages 751-766, May.
    5. Paul R. Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, vol. 76(Nov), pages 5-25.
    6. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 4, pages 45-51, World Scientific Publishing Co. Pte. Ltd..
    7. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
    8. Kowalczyk, Carsten & Sjostrom, Tomas, 1994. "Bringing GATT into the Core," Economica, London School of Economics and Political Science, vol. 61(243), pages 301-317, August.
    9. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
    10. M. Ayhan Kose & Raymond Riezman, 2013. "Understanding the Welfare Implications of Preferential Trade Agreements," World Scientific Book Chapters, in: Raymond Riezman (ed.),International Trade Agreements and Political Economy, chapter 7, pages 85-99, World Scientific Publishing Co. Pte. Ltd..
    11. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
    12. Jon D. Haveman, 1996. "Some Welfare Effects of Sequential Customs Union Formation," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 941-958, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oksana Harbuzyuk & Stefan Lutz, 2008. "Analyzing trade opening in Ukraine: effects of a customs union with the EU," Economic Change and Restructuring, Springer, vol. 41(3), pages 221-238, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carsten Kowalczyk & Raymond Riezman, 2013. "Trade Agreements," Palgrave Macmillan Books, in: Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), Palgrave Handbook of International Trade, chapter 13, pages 367-388, Palgrave Macmillan.
    2. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
    3. Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc.
    4. Raymond Riezman, 1999. "Can Bilateral Trade Agreements Help Induce Free Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 32(3), pages 751-766, May.
    5. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    6. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
    7. Carsten Kowalczyk & Raymond Riezman, 2013. "Free trade: what are the terms-of-trade effects?," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 10, pages 149-164, World Scientific Publishing Co. Pte. Ltd..
    8. 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.
    9. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August.
    10. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tarriff Cooperation During the Formation of Regional Free Trade Areas," NBER Working Papers 4364, National Bureau of Economic Research, Inc.
    11. 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, May.
    12. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    13. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 8, pages 101-127, World Scientific Publishing Co. Pte. Ltd..
    14. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, February.
    15. Baldwin, Richard & Jaimovich, Dany, 2012. "Are Free Trade Agreements contagious?," Journal of International Economics, Elsevier, vol. 88(1), pages 1-16.
    16. Melatos, Mark & Woodland, Alan, 2007. "Endogenous trade bloc formation in an asymmetric world," European Economic Review, Elsevier, vol. 51(4), pages 901-924, May.
    17. Lisandro Abrego & Raymond Riezman & John Whalley, 2006. "How reasonable are assumptions used in theoretical models? Computational evidence on the likelihood of trade pattern changes," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 781-789, August.
    18. Lisandro Abrego & Raymond Riezman & John Whalley, 2013. "How often are propositions on the effects of regional trade agreements theoretical curiosa?," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 9, pages 129-148, World Scientific Publishing Co. Pte. Ltd..
    19. Inés Macho‐Stadler & Licun Xue, 2007. "Winners and Losers from the Gradual Formation of Trading Blocs," Economica, London School of Economics and Political Science, vol. 74(296), pages 664-681, November.
    20. Conconi, P., 2000. "Trade Bloc Formation Under Imperfect Competition," The Warwick Economics Research Paper Series (TWERPS) 571, University of Warwick, Department of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_253. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.