Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them?

Masahiro Endoh (), Koichi Hamada () and Koji Shimomura
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Masahiro Endoh: Keio University
Koichi Hamada: Economic Growth Center, Yale University
Koji Shimomura: Kobe University

Working Papers from Economic Growth Center, Yale University

Abstract: PTAs are generally negotiated without any tariff concessions or transfers to non-member countries. Can such a PTA benefit the neighbors’ welfare? In a two-good competitive equilibrium model in the absence of an entrepot, a PTA without concessions to the outsider will hurt the outsider’s welfare when goods are normal. If one of the member countries is an entrepot, however, it definitely improves the neighbors’ welfare. In a multiple-good model, a PTA without concessions deteriorates the neighbors’ welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.

Keywords: PTA; Neighbor’s Welfare; Kemp-Wan theorem; WTO; GATT Article 24; Entrepot (search for similar items in EconPapers)
JEL-codes: F11 F13 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2008-01
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