Externalities and Free Trade Agreements

Fritz Grafe and Ana Mauleon

Annals of Economics and Statistics, 2000, issue 59, 63-88

Abstract: This paper studies the consequences of a private or depletable externality on free trade agreements in a general equilibrium framework. lt is shown that there always exists a stable system of free trade spaces in the world economy. This stable system can result in either non-cooperation, partial cooperation, or total cooperation among countries of different types. The non-cooperation system is Pareto dominated by any other cooperating system. By enforcing a tax policy, a GATT arbitrator is able to implement Pareto superior stable systems in which countries of different type are cooperating.

Date: 2000
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Related works:
Working Paper: Externalities and Free Trade Agreements (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2000:i:59:p:63-88

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