Welfare Effects in Customs Unions

McMillan, John; McCann, Ewen

doi:10.2307/2232833

Cited by 54 publications

(8 citation statements)

References 14 publications

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“…Since then, economists tried to refine the theory in an attempt to determine characteristics of member countries and those of liberalization agreements that would ensure welfare improvements. As Panagariya (1997) notes, much of the earlier work on this topic such as Meade (1955), Lipsey (1960), Johnson (1962), and later somewhat synthesized by McMillan and McCann (1981) yielded results that are mostly taxonomic and not practically applicable.…”

Section: Background On Theory Of Natural Trade Partnersmentioning

confidence: 99%

Regionalism versus Multilateralism: Evidence for the Natural Trade Partners Theory from the Euro-Mediterranean Region?

Kandoğan¹

2008

JEI

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The slow pace of multilateral negotiations has given a greater impetus to regional trade arrangements (RTA) as countries are eager to take advantage of welfare enhancing trade creation effect of trade liberalization. At the same time, this approach raises concerns as due their discriminatory nature, RTAs lead to welfare reducing trade diversion from third countries. The paper develops a modified triple-indexed gravity model to measure the trade creation and diversion effects of the preferential trade agreements in the Euro-Mediterranean region. The model is applied to different components of imports, since the welfare implications of each component is expected to be different. Using these measures, the paper proceeds to look for evidence for the Natural Trade Partners Theory using three definitions of natural partners. Results show that there is support for the theory when geographical distance or initial trade volumes are used to define naturalness only for intra-industry components. Stronger support is found when complementarity is used to identify natural partners.• JEL classification: F14, F15•

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Section: Background On Theory Of Natural Trade Partnersmentioning

confidence: 99%

Regionalism versus Multilateralism: Evidence for the Natural Trade Partners Theory from the Euro-Mediterranean Region?

Kandoğan¹

2008

JEI

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“…But whereas Meade focused on the effects of preferential trading in this model on the world welfare, Lipsey (1958) analyzed the effects on the member countries assuming the small-union context. The small-union model has been explored further by McMillan and McCann (1981) and Lloyd (1982).…”

Section: The Meade-lipsey General-equilibrium Modelmentioning

confidence: 99%

Preferential Trade Liberalization: The Traditional Theory and New Developments

Panagariya

2000

Journal of Economic Literature

373

175

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This paper begins by systematically developing the "static" theory of preferential trade areas (PTAs) and showing that neither a large volume of initial intra-union trade nor geographical proximity can serve as a guide to welfare enhancing PTAs. The paper then discusses the modern literature addressing welfare effects of simultaneous division of the world into many PTAs, the impact of the decision to form a PTA on external tariffs and the "dynamic" time-path question of whether PTAs are building blocks or stumbling blocks towards multilateral freeing of trade. A final section discusses key theoretical considerations in the empirical evaluation of PTAs.

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“…This ambiguity led economists to subsequently refine the theory in an attempt to determine member (or partner) country characteristics that would ensure welfare improvement with PTAs. Nevertheless, as Panagariya (1997) notes, much of the early research on this topic, pioneered by Viner (1950), Meade (1955), Lipsey (1960), and Johnson (1962) and later somewhat synthesized by McMillan and McCann (1981), yielded results that were generally considered to be mostly taxonomic and to have limited practical applicability and operational significance.…”

Section: Introductionmentioning

confidence: 99%

Are Regional Trading Partners “Natural”?

Krishna

2003

Journal of Political Economy

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A central statement of the theory of natural trading partners is that preferential trading with regional trading partners is less likely to be trade diverting and therefore geographically proximate partners are to be considered "natural" partners for preferential arrangements. This paper examines this question empirically. The analytical framework involves a general equilibrium model of preferential trade and an econometric model with tight links to this theory. This framework is used to implement tests of the natural trading partners hypothesis using U.S. trade data for the years 1964-95: Welfare changes that would result from preferential tariff reductions by the United States against various trading partners are first estimated, and correlations with bilateral "distance" measures (with and without controls for income levels) are then examined. Since the argument for "natural" trading partners is based on the greater likelihood of geographically proximate countries to be more significant trading partners, correlations between the welfare change estimates and bilateral trade volume are examined as well. Both geographic proximity and trade volume are found to have no effect. Thus this paper is unable to find any support for the natural trading partners theory in U.S. data.

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Welfare Effects in Customs Unions

Cited by 54 publications

References 14 publications

Regionalism versus Multilateralism: Evidence for the Natural Trade Partners Theory from the Euro-Mediterranean Region?

Regionalism versus Multilateralism: Evidence for the Natural Trade Partners Theory from the Euro-Mediterranean Region?

Preferential Trade Liberalization: The Traditional Theory and New Developments

Are Regional Trading Partners “Natural”?

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