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

  • Masahiro Endoh

    ()

    (Keio University)

  • Koichi Hamada

    ()

    (Economic Growth Center, Yale University)

  • Koji Shimomura

    (Kobe University)

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.

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Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 961.

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Length: 30 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:egc:wpaper:961
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