Munich Personal RePEc Archive

Welfare effects of preferential trade agreements under optimal tariffs

Saggi, Kamal and Yildiz, Halis Murat (2005): Welfare effects of preferential trade agreements under optimal tariffs.

[thumbnail of MPRA_paper_17562.pdf]

Download (287kB) | Preview


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.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.