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Abstract
We surveyed the empirical literature using multi-country computable general
equilibrium (CGE) models to analyse potential and actual regional trade agreements
(RTAs). The studies indicate that these RTAs improve welfare, that trade creation
greatly exceeds trade diversion, and that they are consistent with further global
liberalisation. The welfare gains are bigger when models incorporate aspects of ‘‘new
trade theory’’ such as increasing returns, imperfect competition, and links between
trade liberalisation, total factor productivity growth, and capital accumulation. We
also conjectured that an RTA expands market size and stability, allowing firms to
pursue economies of fine specialisation, generating additional ‘‘Smithian’’ efficiency
gains.