Regional Trading Arrangements: Natural or Super-Natural

Jeffrey Frankel, Ernesto Stein and Shang-Jin Wei

No 233421, Center for International and Development Economics Research (CIDER) Working Papers from University of California-Berkeley, Department of Economics

Abstract: This paper summarizes recent research by the authors on the effects of tree trade areas (FTAs). Within our model, which emphasizes inter-continental transport costs, several conclusions arise. (1) FTAs are likely to be detrimental over a moderate range of parameter values, even if drawn along natural regional lines. (2) A small margin of preferences for neighbors is beneficial. (3) Optimal preferences depend on the parameters, particularly on transport costs. (4) If preferences are raised futther, they enter the zone of negative returns to regionalization, and eventually the super-natural zone, where welfare is lower than under the MFN status quo. Estimates from the gravity model suggest the world system may already be in the super-natural zone. The core model leaves out many factors. But we have pursued a variety of extensions by now. Perhaps the two most important are generalizing the highly stylized model of trade (to include factor endowments), and relaxing the assumption that the inter-bloc level of tariffs remains fixed. In the latter case, allowing tariffs to be endogenous yields a much more optimistic outlook for the effects of FTAs.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 22
Date: 1996-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Related works:
Journal Article: Regional Trading Arrangements: Natural or Supernatural (1996)
Working Paper: Regional Trading Arrangement: Natural or Super-Natural? (1996)
Working Paper: Regional Trading Arrangements: Natural or Super-Natural? (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbewp:233421

DOI: 10.22004/ag.econ.233421

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