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On potential Pareto gains from free trade areas formation

Author

Listed:
  • Jaume Sempere

    (El Colegio de México)

Abstract

This paper extends the results of Grinols and Silva (2011) to Free TradeAreas with rules of origin requiring a minimum national content. These rulesinclude, for instance, the ones stipulated in the NAFTA (or the USMCA)agreement. In our model, producers decide whether or not to comply withrules of origin to avoid paying tariffs to export to other FTA members. How-ever, there is a technical problem caused by the fact that, as prices change,producers can switch from production plans that satisfy rules of origin toproduction plans that do not. This can produce a discontinuity in the sup-ply correspondence. We prove existence of equilibrium with Pareto gainsfrom forming FTAs by assuming that there are a continuum of producerswith an atomless distribution of characteristics.

Suggested Citation

  • Jaume Sempere, 2020. "On potential Pareto gains from free trade areas formation," Serie documentos de trabajo del Centro de Estudios Económicos 2020-02, El Colegio de México, Centro de Estudios Económicos.
    • Handle: RePEc:emx:ceedoc:2020-02
    as

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    File URL: https://cee.colmex.mx/dts/2020/DT-2020-2.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    gains form trade; Free Trade Areas; rules of origin; general equilibrium;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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