Regional Trading Arrangement: Natural or Super-Natural? / Jeffrey A. Frankel, Ernesto Stein, Shang-Jin Wei.

Format:

Book

Author/Creator:

Frankel, Jeffrey A.

Contributor:

National Bureau of Economic Research.

Stein, Ernesto.

Wei, Shang-Jin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5431.

NBER working paper series no. w5431

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Regional Trading Arrangement

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

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.

Notes:

Print version record

January 1996.