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Does Free Trade Benefit All?

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  • MACHO-STADLER, Inés
  • XUE, Licun

Abstract

Although global free trade is efficient, each country's benefit from free trade depends on the path that leads to the global trade agreement. Using a dynamic model of trading bloc formation, we show that when global free trade is reached gradually, the countries that are initially excluded gain less than the rest and may be even made worse-off by the final free trade agreement, compared with the initial state of autarkies.

Suggested Citation

  • MACHO-STADLER, Inés & XUE, Licun, 2005. "Does Free Trade Benefit All?," Cahiers de recherche 13-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:13-2005
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    1. Burbidge, John B. & James A. DePater & Gordon M. Meyers & Abhijit Sengupta, 1997. "A Coalition-Formation Approach to Equilibrium Federations and Trading Blocs," American Economic Review, American Economic Association, vol. 87(5), pages 940-956, December.
    2. John Kennan & Raymond Riezman, 2013. "Optimal Tariff Equilibria with Customs Unions," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 5, pages 53-66 World Scientific Publishing Co. Pte. Ltd..
    3. Hideo Konishi & Carsten Kowalczyk & Tomas Sjostrom, 2003. "Free Trade, Customs Unions, and Transfers," Boston College Working Papers in Economics 568, Boston College Department of Economics.
    4. Yi, Sang-Seung, 2000. "Free-Trade Areas and Welfare: An Equilibrium Analysis," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 336-347, May.
    5. Macho-Stadler, Ines & Perez-Castrillo, David & Ponsati, Clara, 1998. "Stable Multilateral Trade Agreements," Economica, London School of Economics and Political Science, vol. 65(258), pages 161-177, May.
    6. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
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