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

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 entrepot, a PTA without concessions to the outsider will hurt the outsider’s welfare when goods are normal. If one of the member countries is an entrepot, 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.


Issue Date:
2008
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/6334
Total Pages:
30
JEL Codes:
F11; F13; F15
Series Statement:
Economic Growth Center Discussion Paper
No. 961




 Record created 2017-04-01, last modified 2018-01-22

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