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Rules of Origin and Gains from Trade

Author

Listed:
  • Earl L. Grinols

    (Baylor University)

  • Peri Silva

    () (University of North Dakota and Centro Studi Luca d\'Agliano)

Abstract

This paper identifies the most restrictive limit that rules of origin can enforce and still continue to guarantee gains from trade area formation in general settings. Many commonly used rules of origin exceed this condition in practise. Second, free trade areas generally involve unharmonized tariffs requiring rules of origin that make standard analyses difficult or inapplicable. We incorporate the identified welfare-supporting rules of origin into standard existence of equilibrium proofs and prove the existence of a free trade area equilibrium involving only within-FTA transfers that is at least as satisfactory for every consumer worldwide as an arbitrary original world for allocation. The analysis explains why hub-and-spoke extensions of free areas cannot guarantee gains from trade for all participants in general.

Suggested Citation

  • Earl L. Grinols & Peri Silva, 2008. "Rules of Origin and Gains from Trade," Development Working Papers 249, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:249
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    File URL: http://www.dagliano.unimi.it/media/wp2008_249.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sung Hee Lee & Kun Soo Park & Yong Won Seo, 2016. "Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation," Sustainability, MDPI, Open Access Journal, vol. 9(1), pages 1-16, December.
    2. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 139-161, September.
    3. Lutz Arnold, 2013. "Existence of equilibrium in the Helpman–Krugman model of international trade with imperfect competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 237-270, January.

    More about this item

    Keywords

    Rules of origin; free trade areas; Walrasian equilibrium; welfare analysis;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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