Abstract

"An Enhancement of Modern Free Trade Area Theory"

Earl L. Grinols and Peri Silva

First Author :

Earl L. Grinols
Economics
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

grinols@staff.uiuc.edu

http://www.business.uiuc.edu/faculty/grinols.html

Second Author :

Peri Silva
Economics
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

pasilva@uiuc.edu

Abstract :

This paper constructs a simplified framework for analyzing the welfare effects of free trade areas. We provide an alternative proof of the Panagariya-Krishna proposition on free trade areas, shortening the proof, covering a broader set of circumstances, and showing that the necessary income flows to guarantee welfare gains to all members are paid out of each country's own tariff revenues. The paper provides a close parallel to the important Kemp and Wan custom union theory.

JEL Classification : D6 , F15

Keywords :

Free trade areas, rules of origin, welfare analysis

Manuscript Received : 2003

Manuscript Published : 2003

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