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

Author

Listed:
  • Masahiro Endoh

    (Keio University)

  • Koichi Hamada

    (Economic Growth Center, Yale University)

  • Koji Shimomura

    (Kobe University)

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

  • Masahiro Endoh & Koichi Hamada & Koji Shimomura, 2008. "Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them?," Working Papers 961, Economic Growth Center, Yale University.
    • Handle: RePEc:egc:wpaper:961
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    References listed on IDEAS

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    More about this item

    Keywords

    PTA; Neighbor’s Welfare; Kemp-Wan theorem; WTO; GATT Article 24; Entrepot;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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