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Free Trade Agreements versus Customs Unions

  • Anne O. Krueger
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    Until NAFTA, analyses of preferential trading arrangements began by assuming a customs union with a common external tariff, and the differences between customs unions and free trade agreements (FTAs) have been little analyzed. This paper points to some of the differences between FTAs and customs unions, and shows that on welfare grounds a customs union is always Pareto-superior to an FTA. Moreover, the political economy of FTAs will lead to more opposition to further multilateral trade liberalization than will customs unions.

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    File URL: http://www.nber.org/papers/w5084.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5084.

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    Date of creation: Apr 1995
    Date of revision:
    Publication status: published as Journal of Development Economics, Vol. 54, no. 1 (October 1997): 169-187.
    Handle: RePEc:nbr:nberwo:5084
    Note: IFM ITI
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.orgEmail:


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    1. Jeffrey A. Frankel & Shang-Jin Wei, 1993. "Emerging Currency Blocs," NBER Working Papers 4335, National Bureau of Economic Research, Inc.
    2. Deepak Lal, 1993. "Trade Blocs and Multilateral Free Trade," UCLA Economics Working Papers 697, UCLA Department of Economics.
    3. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
    4. Corden, W.M., 1984. "The normative theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 2, pages 63-130 Elsevier.
    5. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
    6. International Monetary Fund, 1992. "Regional Trade Arrangements," IMF Occasional Papers 93, International Monetary Fund.
    7. Kala Krishna & Anne Krueger, 1995. "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," NBER Working Papers 4983, National Bureau of Economic Research, Inc.
    8. 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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