Preferential Trade and Welfare with Differentiated Products

Denise Konan and Keith Maskus

No 2011-8, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa

Abstract: We consider analytically and numerically the welfare tradeoffs inherent in a preferential trade area (PTA) with products differentiated by region of origin. For a small open economy in such a setting, welfare gains are associated with higher trade volumes within the PTA. However, welfare losses are induced by declining tariff revenues on trade with nonmember countries. We show that both effects are concave, while one is a non-monotonic and the other a potentially non-monotonic function of pre-PTA partner trade shares. Therefore, the relationship between initial partner import shares and direct static welfare impacts of a PTA are theoretically ambiguous. This finding contrasts with conventional results in the homogeneous-goods case, whereby the smaller is the pre-agreement trade volume with a potential partner the more beneficial is a PTA.

Keywords: preferential trade agreements; differentiated products (search for similar items in EconPapers)
JEL-codes: F13 F15 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-02
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://uhero.hawaii.edu/wp-content/uploads/2019/08/WP_2011-8.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Preferential Trade and Welfare with Differentiated Products (2012)
Working Paper: PREFERENTIAL TRADE AND WELFARE WITH DIFFERENTIATED PRODUCTS (2011)
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:hae:wpaper:2011-8

Access Statistics for this paper

More papers in Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa Contact information at EDIRC.
Bibliographic data for series maintained by UHERO (uhero@hawaii.edu).