Trade regimes and Gatt: resource intensive vs. knowledge intensive growth, Chapter 10

Graciela Chichilnisky

MPRA Paper from University Library of Munich, Germany

Abstract: Trading blocks can help or hinder the liberalization of world trade. A determining factor is whether trade within the block is organized around traditional comparative advantages, or around economies of scale. Regional free trade agreements such as NAFTA can be a substitutes for global free trade when they are based on traditional comparative advantages; then each regional market develops market power and incentives to impose tariffs on the rest of the world. Alternatively, regional trade agreements can be complementary to global free trade. This occurs when the blocks are organized around the exploitation of economies of scale and based on knowledge-intensive sectors. I establish that external economies of scale produce incentives for expanded trade; they can defeat the standard arguments for "optimal tariffs" and mitigate another negative feature of trading blocks: their tendency to divert trade from efficient to inefficient sources. The emergence of regional blocks organized around economies of scale can therefore lead to increasingly open international markets. I discuss policy implications for the EU and for free trade in the Americas.

Keywords: free trade; comparative advantage; economies of scale; external economies of scale; knowledge-intensive sectors; knowledge revolution; regional trade agreements; NAFTA; EU; Gatt; trade blocks (search for similar items in EconPapers)
JEL-codes: F13 F43 F53 (search for similar items in EconPapers)
Date: 1996
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Handbook on Globalization of the World Economy (1998): pp. 226-249

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