Trade costs and free trade agreements: Implications for tariff complementarity and welfare

Akihiko Yanase () and Masafumi Tsubuku

International Review of Economics & Finance, 2022, vol. 78, issue C, 23-37

Abstract: This paper develops a three-country model of intra-industry trade under imperfect competition with trade costs between countries to examine the effects of a free trade agreement (FTA). Under sufficiently high trade costs, FTA member countries might have an incentive to set optimal external tariffs that are higher than the pre-FTA optimal tariffs (i.e., the tariff complementarity effect may not exist) and the formation of an FTA may worsen the non-member country’s welfare. Whether the member countries benefit from the FTA depends on the trade costs and the degree of substitutability among differentiated goods.

Keywords: Trade costs; Free trade agreement; Tariff complementarity effect; Welfare (search for similar items in EconPapers)
JEL-codes: F13 F15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056021002173
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:78:y:2022:i:c:p:23-37

DOI: 10.1016/j.iref.2021.10.012

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().