Journal article
A strategic and welfare theoretic analysis of free trade areas
Journal of international economics, Vol.64(1), pp.1-27
10/01/2004
DOI: 10.1016/S0022-1996(03)00078-3
Abstract
We construct a three-country model to determine how the formation of free trade areas (FTAs) affects optimal tariffs and welfare. We find that, at constant rest of the world (ROW) tariffs, the adoption of internal free trade induces union members to reduce their external tariffs below the Kemp–Wan [J. Int. Econom. 6 (1976) 95–97] level, and causes ROW's terms of trade to improve and its welfare to rise. When ROW also behaves optimally, its policy response to the formation of the FTA is to raise tariffs. Generally, FTA members prefer to liberalize internal trade partially and find regional integration appealing only if their collective size is sufficiently large. We also demonstrate how FTAs may undermine the attainment of global free trade.
Details
- Title: Subtitle
- A strategic and welfare theoretic analysis of free trade areas
- Creators
- Eric W. Bond - Pennsylvania State UniversityRaymond G. Riezman - University of IowaConstantinos Syropoulos - Florida International University
- Resource Type
- Journal article
- Publication Details
- Journal of international economics, Vol.64(1), pp.1-27
- DOI
- 10.1016/S0022-1996(03)00078-3
- ISSN
- 0022-1996
- eISSN
- 1873-0353
- Publisher
- Elsevier B.V
- Number of pages
- 27
- Language
- English
- Date published
- 10/01/2004
- Academic Unit
- Economics
- Record Identifier
- 9984963219702771
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