International Trade, Regional Free Trade Agreements, and Economic Development

REVIEW OF DEVELOPMENT ECONOMICS

Posted: 7 Mar 1997

See all articles by Scott L. Baier

Scott L. Baier

Clemson University - John E. Walker Department of Economics

Jeffrey H. Bergstrand

University of Notre Dame

Abstract

Krugman (1991a,b) illustrated that natural (regional) free trade agreements (FTAs) are likely welfare enhancing if intercontinental transport costs are prohibitively high, but are likely welfare reducing if such costs are zero. Frankel, Stein and Wei (1995) extended the analysis to consider positive but nonprohibitive transport costs. We extend these models to allow for countries of different economic size. Large countries will tend to have higher relative wages, influencing the relative gains and losses from natural FTAs. For even modest differences in size, intracontinental FTAs are welfare enhancing for larger countries, regardless of strong preferences for diversity or low intercontinental transport costs.

JEL Classification: F1, O1

Suggested Citation

Baier, Scott Leonard and Bergstrand, Jeffrey H., International Trade, Regional Free Trade Agreements, and Economic Development. REVIEW OF DEVELOPMENT ECONOMICS, Available at SSRN: https://ssrn.com/abstract=4711

Scott Leonard Baier

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-4534 (Phone)

Jeffrey H. Bergstrand (Contact Author)

University of Notre Dame ( email )

Mendoza College of Business
Notre Dame, IN 46556
United States
574-631-6761 (Phone)
574-631-5255 (Fax)

HOME PAGE: http://www3.nd.edu/~jbergstr

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