Saggi, Kamal and Yildiz, Halis Murat (2005): Welfare effects of preferential trade agreements under optimal tariffs.
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In a three country model with endogenous tariffs, this paper evaluates and contrasts the welfare effects of free trade agreements (FTAs) and customs unions (CUs) — the two most commonly occurring preferential trade agreements (PTAs). We show that if the external tariff of a PTA is not too high, it benefits both members and non-members. We also highlight the implications of a key (but commonly ignored) distinction between the two types of PTAs: while an FTA member can form an another (independent) FTA with an existing non-member, a CU member cannot. Under a pair of independent bilateral FTAs, the common member’s welfare is higher than that under free trade. Furthermore, if the common member is relatively efficient compared to the other two countries, such a ‘hub and spoke’ pattern of FTAs can yield higher global welfare than free trade. By contrast, such an outcome is never possible under a CU.
|Item Type:||MPRA Paper|
|Original Title:||Welfare effects of preferential trade agreements under optimal tariffs|
|Keywords:||Free Trade Agreements, Customs Unions, External Tariffs, Welfare, Intraindustry Trade, Oligopoly|
|Subjects:||F - International Economics > F1 - Trade > F13 - Trade Policy; International Trade Organizations
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
|Depositing User:||Halis Murat Yildiz|
|Date Deposited:||28. Sep 2009 16:27|
|Last Modified:||17. Feb 2013 20:41|
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