A free trade area and its neighbor’s welfare: A revealed preference approach

Masahiro Endoh, Koichi Hamada, Koji Shimomura

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Purpose – A free trade agreement (FTA) or a preferential trade agreement (PTA) is almost always negotiated without concessions to the non-member countries. This chapter studies the welfare effects of such an FTA or PTA on the non-member countries. Methodology/approach – This chapter employs the revealed preference approach (e.g., Ohyama, 1972; Kemp and Wan, 1976; Deardorff, 1980). Findings – Under such conditions that the initial levels of the tariffs are small, or that the effects on production efficiency dominate the effects on tariff revenue, or that the tax-subsidy scheme proposed by Bhagwati, Ramaswami, and Srinivasan is employed in all the countries, the formation of a PTA without any tariff concessions to the outside countries will harm the welfare of the outside countries. Practical implications – In order to make a PTA beneficial not only for member countries but for the rest of the world, member countries need to grant some tariff concessions to the imports from the non-member countries.

Original languageEnglish
Title of host publicationGlobalization and Emerging Issues in Trade Theory and Policy
PublisherEmerald Group Publishing Ltd.
Pages87-99
Number of pages13
ISBN (Print)9781846639623
DOIs
Publication statusPublished - 2008 Jan 1

Publication series

NameFrontiers of Economics and Globalization
Volume5
ISSN (Print)1574-8715

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Keywords

  • CU
  • FTA
  • GATT Article XXIV
  • Pareto-improving FTA
  • PTA
  • Revealed preference

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

Endoh, M., Hamada, K., & Shimomura, K. (2008). A free trade area and its neighbor’s welfare: A revealed preference approach. In Globalization and Emerging Issues in Trade Theory and Policy (pp. 87-99). (Frontiers of Economics and Globalization; Vol. 5). Emerald Group Publishing Ltd.. https://doi.org/10.1016/S1574-8715(08)05007-0