Continental Trading Blocs: Are They 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. w4588.

NBER working paper series no. w4588

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Continental Trading Blocs

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1993.

Summary:

Using the gravity model, we find evidence of three continental trading blocs: the Americas, Europe and Pacific Asia. Intra-regional trade exceeds what can be explained by the proximity of a pair of countries, their sizes and GNP/capitas, and whether they share a common border or language. We then turn from the econometrics to the economic welfare implications. Krugman has supplied an argument against a three-bloc world, assuming no transport costs, and another argument in favor, assuming prohibitively high transportation costs between continents. We complete the model for the realistic case where intercontinental transport costs are neither prohibitive nor zero. If transport costs are low, continental Free Trade Areas can reduce welfare. We call such blocs super-natural. Partial liberalization is better than full liberalization within regional Preferential Trading Arrangements, despite the GATT's Article 24. The super-natural zone occurs when the regionalization of trade policy exceeds what is justified by natural factors. Estimates suggest that trading blocs like the current EC are super-natural.

Notes:

Print version record

December 1993.