The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Regional and Preferential Trade Agreements

  • Pravin Krishna
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2447

Abstract

This article discusses analytical developments in the literature on the economics and politics of preferential trade agreements (PTAs). It describes results obtained in the traditional theory that demonstrate the ambiguous welfare outcomes of preferential trade liberalization. Theoretical approaches to designing necessarily welfare- improving PTAs are also discussed. Finally, this article sets out recent analyses in the literature concerning the dynamic expansion of trade blocs, the endogenous determination of policy (relating to preferences within a PTA and to extra-union trade), and the effects of preferential agreements on the multilateral trade system.

Keywords

ASEAN free trade area (AFTA) Bargaining Coalitions Comparative advantage Customs unions European economic community (EEC) European free trade association (EFTA) Free trade areas General agreement on tariffs and trade (GATT) Great depression Income distribution International trade Meade, J. E. Mercosur Most-favoured-nation (MFN) principle Multilateral free trade Mundell, R. Natural trading partners hypothesis North American free trade agreement (NAFTA) Preferential trade agreements Redistribution of income Regional and preferential trade agreements Sunk costs Tariffs Terms of trade Trade creation Trade diversion Viner, J 

JEL Classifications

F1 F15 
This is a preview of subscription content, log in to check access.

Bibliography

  1. Aghion, P., P. Antras, and E. Helpman. 2004. Negotiating free trade. Working paper no. 10721. Cambridge: NBER.Google Scholar
  2. Bagwell, K., and R. Staiger. 1997a. Multilateral cooperation during the formation of free trade areas. International Economic Review 38: 291–319.CrossRefGoogle Scholar
  3. Bagwell, K., and R. Staiger. 1997b. Multilateral cooperation during the formation of customs unions. Journal of International Economics 42: 91–123.CrossRefGoogle Scholar
  4. Baldwin, R. 1995. A domino theory of regionalism. In Expanding European regionalism: The EU’s new members, ed. R. Baldwin, P. Haaparanta, and J. Kiander. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  5. Berglas, E. 1979. Preferential trading: The n commodity case. Journal of Political Economy 87: 315–331.CrossRefGoogle Scholar
  6. Bhagwati, J. 1971. Trade-diverting customs unions and welfare improvement: A clarification. Economic Journal 81: 580–587.CrossRefGoogle Scholar
  7. Bhagwati, J. 1993. Regionalism and multilateralism: An overview. In New dimensions in regional integration, ed. J. de Melo and A. Panagariya. Cambridge: Cambridge University Press.Google Scholar
  8. Bhagwati, J. 1995. U.S. trade policy: The infatuation with free trade areas. In The dangerous drift to preferential trade agreements, ed. J. Bhagwati and A. Krueger. Washington, DC: AEI Press.Google Scholar
  9. Bhagwati, J., and A. Panagariya. 1996. Free trade areas or free trade? The economics of preferential trade areas. Washington, DC: AEI Press.Google Scholar
  10. Bohara, A., K. Gawande, and P. Sanguinetti. 2004. Trade diversion and declining tariffs: Evidence from Mercosur. Journal of International Economics 64: 65–88.CrossRefGoogle Scholar
  11. Bond, E., and C. Syropoulos. 1996. The size of trading blocs, market power and world welfare effects. Journal of International Economics 40: 411–437.CrossRefGoogle Scholar
  12. Cadot, O., J. de Melo, and M. Olarreaga. 1999. Regional integration and lobbying for tarriffs against non-members. International Economic Review 40: 635–658.CrossRefGoogle Scholar
  13. Cadot, O., J. de Melo, and M. Olarreaga. 2001. Can bilateralism ease the pains of multilateral trade liberalization? European Economic Review 45: 27–44.CrossRefGoogle Scholar
  14. Cadot, O., J. de Melo, and M. Olarreaga. 2002. Harmonizing external quotas in an FTA: A step backward? Economics and Politics 14: 259–282.CrossRefGoogle Scholar
  15. Chang, W., and A. Winters. 2002. How regional blocs affect excluded countries: The price effects of Mercosur. American Economic Review 92: 889–904.CrossRefGoogle Scholar
  16. Cho, M.-J. 2006. On the external trade barriers of preferential trade agreements: Empirical evidence from Mexican manufacturing industries. Mimeo: Brown University.Google Scholar
  17. Cho, M.-J., and P. Krishna. 2006. On the external trade barriers of preferential trade agreements. Mimeo: Brown University.Google Scholar
  18. Deardorff, A., and R. Stern. 1994. Multilateral trade negotiations and preferential trading arrangements. In Analytical and negotiating issues in the global trading system, ed. A. Deardorff and R. Stern. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
  19. Freund, C. 2000a. Different paths to free trade: The gains from regionalism. Quarterly Journal of Economics 115: 1317–1341.CrossRefGoogle Scholar
  20. Freund, C. 2000b. Multilateralism and the endogenous formation of preferential trade agreements. Journal of International Economics 52: 359–376.CrossRefGoogle Scholar
  21. Gehrels, F. 1956–1957. Customs union from a single–country viewpoint. Review of Economic Studies 24: 61–64.CrossRefGoogle Scholar
  22. Grossman, G., and E. Helpman. 1995. The politics of free trade arrangements. American Economic Review 85: 667–690.Google Scholar
  23. Kemp, M. 1964. The pure theory of international trade. Englewood Cliffs: Prentice-Hall.Google Scholar
  24. Kemp, M., and H. Wan. 1976. An elementary proposition concerning the formation of customs unions. Journal of International Economics 6: 95–98.CrossRefGoogle Scholar
  25. Krishna, P. 1998. Regionalism and multilateralism: A political economy approach. Quarterly Journal of Economics 113: 227–250.CrossRefGoogle Scholar
  26. Krishna, P. 2003. Are regional trading partners ‘natural’? Journal of Political Economy 111: 202–231.CrossRefGoogle Scholar
  27. Krishna, P., and J. Bhagwati. 1997. Necessarily welfare-improving customs unions with industrialization constraints: The Cooper–Massell–Johnson–Bhagwati proposition. Japan and the World Economy 154: 169–187.Google Scholar
  28. Krueger, A. 1999. Free trade agreements as protectionist devices: Rules of origin. In Trade, theory and econometrics: Essays in honor of John S. Chipman, Studies in the modern world economy, ed. J. Melvin, R. Moore, and R. Riezman, Vol. 15. London: Routledge.Google Scholar
  29. Krugman, P. 1991. The move to free trade zones. In Policy implications of trade and currency zones, Federal Reserve Bank of Kansas City. Kansas City: Federal Reserve Bank of Kansas City.Google Scholar
  30. Krugman, P. 1993. Regionalism versus multilateralism: Analytical notes. In New dimensions in regional integration, ed. J. de Melo and A. Panagariya. Cambridge: Cambridge University Press.Google Scholar
  31. Levy, P. 1997. A political economic analysis of free trade arrangements. American Economic Review 87: 506–519.Google Scholar
  32. Limão, N. 2006. Preferential trade agreements as stumbling blocks for multilateral trade liberalization: Evidence for the United States. American Economic Review 96: 896–914.CrossRefGoogle Scholar
  33. Lipsey, R. 1957. The theory of customs unions: Trade diversion and welfare. Economica 24: 40–46.CrossRefGoogle Scholar
  34. McLaren, J. 2002. A theory of insidious regionalism. Quarterly Journal of Economics 117: 571–608.CrossRefGoogle Scholar
  35. Meade, J. 1955. The theory of customs unions. Amsterdam: North-Holland.Google Scholar
  36. Mundell, R. 1964. Tariff preferences and the terms of trade. Manchester School of Economic Studies 32: 1–13.CrossRefGoogle Scholar
  37. Ohyama, M. 1972. Trade and welfare in general equilibrium. Keio Economic Studies 9: 37–73.Google Scholar
  38. Ornelas, E. 2005. Endogenous Free trade agreements and the multilateral trading system. Journal of International Economics 67: 471–497.CrossRefGoogle Scholar
  39. Panagariya, A. 1997a. The Meade model of preferential trading: History, analytics and policy implications. In International trade and finance: New frontiers for research: Essays in honor of Peter Kenen, ed. B. Cohen. Cambridge: Cambridge University Press.Google Scholar
  40. Panagariya, A. 1997b. Preferential trading and the myth of natural trading partners. Japan and the World Economy 9: 471–489.CrossRefGoogle Scholar
  41. Panagariya, A. 2000. Preferential trade liberalization: The traditional theory and new developments. Journal of Economic Literature 161: 316–360.Google Scholar
  42. Panagariya, A., and R. Findlay. 1996. A political economy analysis of free trade areas and customs unions. In The political economy of trade reform: Essays in honor of Jagdish Bhagwati, ed. R. Feenstra, D. Irwin, and G. Grossman. Cambridge: MIT Press.Google Scholar
  43. Panagariya, A., and P. Krishna. 2002. On necessarily welfare-enhancing free trade areas. Journal of International Economics 57: 353–367.CrossRefGoogle Scholar
  44. Richardson, M. 1994. Why a free trade area? The tariff also rises. Economics and Politics 6: 79–95.CrossRefGoogle Scholar
  45. Richardson, M. 1995. Tariff revenue competition in a free trade area. European Economic Review 39: 1429–1437.CrossRefGoogle Scholar
  46. Riezman, R. 1979. A 3 × 3 model of customs unions. Journal of International Economics 9: 341–354.CrossRefGoogle Scholar
  47. Saggi, K. 2006. Preferential trade agreements and multilateral tariff cooperation. International Economic Review 47: 29–57.CrossRefGoogle Scholar
  48. Srinivasan, T. 1993. Discussion on regionalism vs multilateralism: Analytical notes. In New dimensions in regional integration, ed. A. Panagariya and J. de Melo. Washington, DC: World Bank.Google Scholar
  49. Srinivasan, T., J. Whalley, and I. Wooton. 1993. Measuring the effects of regionalism on trade and welfare. In Regional integration and the global trading system, ed. K. Anderson and R. Blackhurst. New York: St Martin’s Press.Google Scholar
  50. Summers, L. 1991. Regionalism and the world trading system. In Policy implications of trade and currency zones, Federal Reserve Bank of Kansas City. Federal Reserve Bank of Kansas City: Kansas City.Google Scholar
  51. Vanek, J. 1965. General equilibrium of international discrimination. Cambridge: Harvard University Press.Google Scholar
  52. Viner, J. 1950. The customs unions issue. New York: Carnegie Endowment for International Peace.Google Scholar
  53. Wonnacott, P., and M. Lutz. 1987. Is there a case for free trade areas? In Free trade areas and US trade policy, ed. J. Schott. Washington, DC: Institute for International Economics.Google Scholar
  54. Yi, S.-S. 1996. Endogenous formation of customs unions under imperfect competition: Open regionalism is good. Journal of International Economics 41: 153–177.CrossRefGoogle Scholar
  55. Yeats, A. 1998. Does Mercosur’s trade performance raise concerns about the effects of regional trade arrangements? World Bank Economic Review 12: 1–28.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Pravin Krishna
    • 1
  1. 1.