Preferential Trade and Welfare with Differentiated Products
We consider analytically and numerically the welfare tradeoffs inherent in a preferential trade area (PTA) with products differentiated by region of origin. For a small open economy in such a setting, welfare gains are associated with higher trade volumes within the PTA. However, welfare losses are induced by declining tariff revenues on trade with nonmember countries. We show that both effects are concave, while one is a non-monotonic and the other a potentially non-monotonic function of pre-PTA partner trade shares. Therefore, the relationship between initial partner import shares and direct static welfare impacts of a PTA are theoretically ambiguous. This finding contrasts with conventional results in the homogeneous-goods case, whereby the smaller is the pre-agreement trade volume with a potential partner the more beneficial is a PTA.
|Date of creation:||Feb 2011|
|Date of revision:|
|Contact details of provider:|| Postal: 2424 Maile Way, Social Sciences Building 542, Honolulu, Hawaii 96822|
Fax: (808) 956-2889
Web page: http://www.uhero.hawaii.edu
More information through EDIRC
References listed on IDEAS
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.:
- Taiji Furusawa & Hideo Konishi, 2002.
"Free Trade Networks,"
Boston College Working Papers in Economics
548, Boston College Department of Economics, revised 08 Sep 2003.
- Raymond RIEZMAN, 2013.
"A 3 × 3 Model of Customs Unions,"
World Scientific Book Chapters,
in: International Trade Agreements and Political Economy, chapter 1, pages 7-20
World Scientific Publishing Co. Pte. Ltd..
- Chen, Maggie & Joshi, Sumit, 2010.
"Third-Country Effects on the Formation of Free Trade Agreements,"
23507, University Library of Munich, Germany.
- Chen, Maggie Xiaoyang & Joshi, Sumit, 2010. "Third-country effects on the formation of free trade agreements," Journal of International Economics, Elsevier, vol. 82(2), pages 238-248, November.
- Maggie Xiaoyang Chen & Sumit Joshi, 2010. "Third-Country Effects on the Formation of Free Trade Agreements," Working Papers 2008-16, The George Washington University, Institute for International Economic Policy.
- Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004.
"A strategic and welfare theoretic analysis of free trade areas,"
Journal of International Economics,
Elsevier, vol. 64(1), pages 1-27, October.
- Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
When requesting a correction, please mention this item's handle: RePEc:hae:wpaper:2011-8. 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: (UHERO)
If references are entirely missing, you can add them using this form.