Small countries and the case for regionalism vs. multilateralism
Much of the debate over whether or not developing countries gain from regional trade agreements (RTA's) has focused on two characteristics that are common to developing countries: their relatively high tariffs and their high trade dependencies on one or a few developed trade partners. In this paper, we address a third common characteristic: their use of distorting domestic policies that are closely linked to trade restrictions. We argue that participation in an RTA can create pressures for domestic policy reforms. We analyze the case of a small country, Mexico, forming an RTA with two larger countries, the U.S. and Canada, in the North American Free Trade Agreement (NAFTA). Mexico exhibits all three characteristics of a developing country: relatively high tariffs, a high trade dependency on the U.S., and an extensive and pervasive system of farm support that was linked to the restriction of trade. For the analysis, we use a 26- sector, multi-country, computable general equilibrium (CGE) model in which the three single- country models are linked through trade flows, and farm programs are modeled in detail. We find that there are welfare gains from trade liberalization in all three countries only when domestic reforms are in place. Mexico gains from NAFTA only when it also removes domestic distortions in agriculture. Then, agriculture can generate allocative efficiency gains that are large enough to offset the terms of trade losses which arise because Mexico has higher initial tariffs than other RTA members.
|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.ifpri.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Winters, L. Alan, 1996.
"Regionalism versus multilateralism,"
Policy Research Working Paper Series
1687, The World Bank.
- Burfisher, Mary & Robinson, Sherman & Thierfelder, Karen, 1992. "Agricultural and food policies in a United States-Mexico free trade area," The North American Journal of Economics and Finance, Elsevier, vol. 3(2), pages 117-139.
- Arvind Panagariya, 1999.
"The Regionalism Debate: An Overview,"
The World Economy,
Wiley Blackwell, vol. 22(4), pages 477-512, 06.
- Robinson, Sherman, 1989. "Multisectoral models," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 18, pages 885-947 Elsevier.
- Schiff, Maurice, 1996. "Small is beautiful : preferential trade agreements and the impact of country size, market share, efficiency, and trade policy," Policy Research Working Paper Series 1668, The World Bank.
- Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
- Arvind Panagariya, 1996. "The Free Trade Area of the Americas: Good for Latin America?," The World Economy, Wiley Blackwell, vol. 19(5), pages 485-515, 09.
- Clarete, Ramon L. & Whalley, John, 1988. "Interactions between trade policies and domestic distortions in a small open developing country," Journal of International Economics, Elsevier, vol. 24(3-4), pages 345-358, May.
- Kilkenny, Maureen & Robinson, Sherman, 1990.
"Computable General Equilibrium Analysis of Agricultural Liberalization: Factor Mobility and Macro Closure,"
Staff General Research Papers
11124, Iowa State University, Department of Economics.
- Kilkenny, Maureen & Robinson, Sherman, 1990. "Computable general equilibrium analysis of agricultural liberalization: Factor mobility and macro closure," Journal of Policy Modeling, Elsevier, vol. 12(3), pages 527-556.
- Devarajan, Shantayanan & Lewis, Jeffrey D & Robinson, Sherman, 1993. "External Shocks, Purchasing Power Parity, and the Equilibrium Real Exchange Rate," World Bank Economic Review, World Bank Group, vol. 7(1), pages 45-63, January.
- Robinson, Sherman & Thierfelder, Karen, 1999.
"Trade liberalization and regional integration: the search for large numbers,"
TMD discussion papers
34, International Food Policy Research Institute (IFPRI).
- Robinson, Sherman & Thierfelder, Karen, 2002. "Trade liberalisation and regional integration: the search for large numbers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), December.
- K. Anderson & R. Tyers, 1993. "More On Welfare Gains To Developing Countries From Liberalizing World Food Trade," Journal of Agricultural Economics, Wiley Blackwell, vol. 44(2), pages 189-204.
- Anderson, James E., 1998.
"The Uruguay Round and welfare in some distorted agricultural economies,"
Journal of Development Economics,
Elsevier, vol. 56(2), pages 393-410, August.
- James E. Anderson, 1997. "The Uruguay Round and Welfare in Some Distorted Agricultural Economies," Boston College Working Papers in Economics 360, Boston College Department of Economics.
- James E. Anderson, 1997. "The Uruguay Round and Welfare in Some Distorted Agricultural Economies," NBER Working Papers 5923, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:fpr:tmddps:54. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.