Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them?

31 Pages Posted: 1 Feb 2008 Last revised: 29 Mar 2008

See all articles by Masahiro Endoh

Masahiro Endoh

Keio University - Faculty of Business and Commerce

Koichi Hamada

Yale University - Department of Economics

Koji Shimomura

Kobe University - Research Institute for Economic and Business Administration

Date Written: January 1, 2008

Abstract

PTAs are generally negotiated without any tariff concessions or transfers to non-member countries. Can such a PTA benefit the neighbors' welfare? In a two-good competitive equilibrium model in the absence of an entrepôt, a PTA without concessions to the outside will hurt the outsider's welfare when goods are normal. If one of the member countries is an entrepôt, however, it definitely improves the neighbors' welfare. In a multiple-good model, a PTA without concessions deteriorates the neighbors' welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.

Keywords: PTA, Neighbor's, Welfare, Kemp-Wan Theorem, WTO, GATT Article 24, Entrepôt

JEL Classification: F11, F13, F15

Suggested Citation

Endoh, Masahiro and Hamada, Koichi and Shimomura, Koji, Can a Preferential Trade Agreement Benefit Neighbor Countries without Compensating Them? (January 1, 2008). Yale University Economic Growth Center Discussion Paper No. 961, Yale Economics Department Working Paper No. 45, Available at SSRN: https://ssrn.com/abstract=1088810

Masahiro Endoh

Keio University - Faculty of Business and Commerce ( email )

2-15-45 Mita
Minato-ku
Tokyo 108-8345
Japan
(81)-3-5427-1277 (Phone)
(81)-3-5427-1578 (Fax)

Koichi Hamada (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Koji Shimomura

Kobe University - Research Institute for Economic and Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501
Japan
+81 78 881 1212 (Phone)
+81 78 861 6434 (Fax)

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