On potential Pareto gains from free trade areas formation

Jaume Sempere

Serie documentos de trabajo del Centro de Estudios Económicos from El Colegio de México, Centro de Estudios Económicos

Abstract: This paper extends the results of Grinols and Silva (2011) to Free TradeAreas with rules of origin requiring a minimum national content. These rulesinclude, for instance, the ones stipulated in the NAFTA (or the USMCA)agreement. In our model, producers decide whether or not to comply withrules of origin to avoid paying tariffs to export to other FTA members. How-ever, there is a technical problem caused by the fact that, as prices change,producers can switch from production plans that satisfy rules of origin toproduction plans that do not. This can produce a discontinuity in the sup-ply correspondence. We prove existence of equilibrium with Pareto gainsfrom forming FTAs by assuming that there are a continuum of producerswith an atomless distribution of characteristics.

Keywords: gains form trade; Free Trade Areas; rules of origin; general equilibrium (search for similar items in EconPapers)
JEL-codes: D50 D60 F13 F15 (search for similar items in EconPapers)
Date: 2020-01
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Journal Article: On potential Pareto gains from free trade areas formation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:emx:ceedoc:2020-02

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