Market Access and Welfare Effects of Free Trade Areas Without Rules of Origin

25 Pages Posted: 25 Jul 2000 Last revised: 24 Jun 2010

See all articles by Jiandong Ju

Jiandong Ju

University of Oklahoma - Department of Economics; Tsinghua University - PBC School of Finance

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1996

Abstract

The market access and welfare effects of Free Trade Areas (FTAs) without Rules of Origin (ROOs) are studied. We consider both the final and intermediate goods markets and their interlinkage. The FTA weakly reduces all tariffs and prices within the FTA. This raises quantity demanded and reduces quantity supplied for both the final and intermediate goods, thereby raising imports. This is the classic trade creation effect and is welfare improving. We identify two additional effects which work in the opposite direction and identify conditions under which these welfare reducing, import reducing effects dominate.

Suggested Citation

Ju, Jiandong and Krishna, Kala, Market Access and Welfare Effects of Free Trade Areas Without Rules of Origin (March 1996). NBER Working Paper No. w5480, Available at SSRN: https://ssrn.com/abstract=225516

Jiandong Ju (Contact Author)

University of Oklahoma - Department of Economics ( email )

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Tsinghua University - PBC School of Finance

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China

Kala Krishna

Pennsylvania State University - Department of Economics ( email )

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United States
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National Bureau of Economic Research (NBER)

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