Chapter 10 Pareto-Improving Trading Clubs without Income Transfers

Kazumichi Iwasa, Raymond Riezman and Koji Shimomura

A chapter in Globalization and Emerging Issues in Trade Theory and Policy, 2008, pp 139-162 from Emerald Group Publishing Limited

Abstract: Purpose – We ask how far the Kemp–Wan Pareto-improving result can hold without inter-country transfers. Methodology/approach – Assuming that the standard revenue and expenditure functions exist, we consider tariff adjustments for some group of countries such that they makes member countries better off without affecting non-member countries (a la Kemp–Wan). Findings – Any group of countries can engage in a Pareto-improving non-discriminatory tariff reform without income transfers, if (i) there are more than two tradable goods and (ii) the initial tariff vectors of the member countries satisfy the non-proportionality condition. We then show that if these two conditions hold then countries can form a Pareto-optimal customs union. Depending on initial conditions, transfers may be necessary for the customs union to be Pareto-improving. Originality/value of paper – The Pareto-improving result of this chapter is based on tariff reform only.

Keywords: Customs unions; Research paper (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eme:fegzzz:s1574-8715(08)05010-0

DOI: 10.1016/S1574-8715(08)05010-0

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