Regional Trading Arrangement: Natural or Super-Natural?

Jeffrey Frankel, Ernesto Stein and Shang-Jin Wei

No 5431, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper summarizes recent research by the authors on the effects of free 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 further, 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.

JEL-codes: F1 (search for similar items in EconPapers)
Date: 1996-01
Note: IFM ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

Published as American Economic Review, Vol. 86, no.2 (May 1996).
Published as Regional Trading Arrangements, H. Singer, N. Hatti, and R. Tandon, eds., India: BRPC, 2000.

Downloads: (external link)
http://www.nber.org/papers/w5431.pdf (application/pdf)

Related works:
Journal Article: Regional Trading Arrangements: Natural or Supernatural (1996)
Working Paper: Regional Trading Arrangements: Natural or Super-Natural (1996)
Working Paper: Regional Trading Arrangements: Natural or Super-Natural? (1996)
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:nbr:nberwo:5431

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5431

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().