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Sustainability of Free Trade Agreements Under a Maximum Revenue Tariff

  • Makoto OkamuraEmail author
  • Takao Ohkawa
Chapter
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Part of the New Frontiers in Regional Science: Asian Perspectives book series (NFRSASIPER, volume 10)

Abstract

This chapter examines the sustainability of multilateral free trade (MFT) or a bilateral free trade agreement (FTA) in a welfare-maximizing tariff regime compared with that in a revenue-maximizing tariff regime. To do so, we construct a framework consisting of three countries, each of whose markets are segmented, and three firms, each of which supplies its product in the three markets. We examine the sustainability of the FTAs by using a repeated game setting. We establish the following: (1) MFT is less sustainable in a revenue-maximizing tariff regime than in a welfare-maximizing tariff regime, while a bilateral FTA has almost the same sustainability in both regimes. (2) Suppose that a bilateral FTA is formed. Expansion of the FTA is more sustainable in a revenue-maximizing tariff regime than in a welfare-maximizing tariff regime. An FTA may be a building block (a stumbling block) to MFT in a revenue-maximizing tariff regime (a welfare-maximizing tariff regime).

Keywords

FTA MFT Sustainability Welfare-maximizing tariff regime Revenue-maximizing tariff regime 

Notes

Acknowledgements

This work was supported by Grants-in-Aid for Scientific Research (no. 23530303, 26380340, and 15K03492). All remaining errors are ours.

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Copyright information

© Springer Japan 2016

Authors and Affiliations

  1. 1.Faculty of Economics, Gakushuin UniversityTokyoJapan
  2. 2.Faculty of Economics, Ritsumeikan UniversityKusatsuJapan

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