On the different geographic characteristics of Free Trade Agreements and Customs Unions

• 成果类型: Article
• 署名作者: Lake, James; Yildiz, Halis M.
• 署名单位: Southern Methodist University; Toronto Metropolitan University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2016.09.003
• 发表日期: 2016
• 页码: 213-233
• 关键词: Free Trade Agreement; Customs union; flexibility; COORDINATION; geography; Farsighted networks

摘要

Casual observation reveals a striking phenomenon of Preferential Trade Agreements (PTAs): while Customs Unions (CUs) are only intra-regional, Free Trade Agreements (FTAs) are inter and intra-regional. Using a farsighted dynamic model, we endogenize the equilibrium path of PTAs among two close countries and one far country. Rising transport costs mitigate the cost of discrimination faced by the far country as a CU nonmember and diminish the value of preferential access as a CU member. Thus, sufficiently large transport costs imply that an FTA is the only type of PTA that can induce the far country's participation in PTA formation. Unlike CU formation, FTA formation can induce participation because FTAs provide a flexibility benefit: an FTA member can form further PTAs with non-members but a CU member must do, so jointly with all existing members. Hence, in equilibrium, CUs are intra-regional while FTAs are intra- and inter-regional. (C) 2016 Elsevier B.V. All rights reserved.