RTAs are generally formed without any tariff concessions or transfers to nonmember countries. Can such an RTA benefit nonmembers' welfare? In a two-good three-country competitive equilibrium model in the absence of an entrepôt, an RTA without concessions to a nonmember will hurt nonmembers' welfare when goods are normal. If one of the member countries is an entrepôt, however, it definitely improves nonmembers' welfare. In a three-good three-country model, an RTA without concessions damages the nonmember's welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.
ASJC Scopus subject areas
- Geography, Planning and Development