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'Natural' Trading Blocs: A Closer Look

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  • Nitsch, Volker

Abstract

It is occasionally argued that the formation of trading blocs between geographi - cally proximate countries should be encouraged because positive welfare effects are more likely to outweigh negative welfare effects. This paper presents a simple d i ff e rentiated products model that allows to test whether the formation of a ‘natural’ trading bloc, first, is indeed increasing world welfare and, second, is welfare-superior to the formation of an ‘unnatural’ trading bloc. Simulations show that, while the removal of trade barriers always improves world welfare, ‘unnatural’ bloc formation may, under some conditions, be welfare-superior to the formation of trading blocs along ‘natural’ lines. The concept of ‘natural’ trad - ing blocs is therefore a misguided prescription.
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Suggested Citation

  • Nitsch, Volker, 1997. "'Natural' Trading Blocs: A Closer Look," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 34477, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:34477
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/34477/
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    Cited by:

    1. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
    2. Baldwin, Richard, 2008. "Big-Think Regionalism: a Critical Survey," CEPR Discussion Papers 6874, C.E.P.R. Discussion Papers.

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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