Jeffrey A. Frankel

in The Regionalization of the World Economy

Published by University of Chicago Press

Published in print November 1997 | ISBN: 9780226259956
Published online February 2013 | e-ISBN: 9780226260228 | DOI:

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This book addresses several large questions. Why do countries adopt free trade areas (FTAs) and other regional trading arrangements? To what extent have existing regional arrangements actually affected patterns of trade? What are the welfare effects of such arrangements? In most economic models, whether classical or new-fangled, economic welfare is maximized by worldwide free trade. The difficult questions arise when one assumes that this first-best solution is not attainable politically. Which is second-best: a system of most favored nation (MFN), that is, nondiscriminatory tariffs, or a system where groups of countries deviate from the MFN principle in order to form FTAs, which eliminate trade barriers internally while keeping them externally? The issue of regional currency arrangements enters tangentially into two of the chapters, by way of their effects on trade. Several of the chapters, particularly where the effects of regional trade agreements are explored econometrically, make extensive use of the gravity model of bilateral trade. The book also looks at the General Agreement on Tariffs and Trade and the North American Free Trade Agreement.

Keywords: free trade areas; regional trade agreements; economic welfare; tariffs; currency; gravity model; bilateral trade; General Agreement on Tariffs and Trade; North American Free Trade Agreement

Chapter.  2953 words. 

Subjects: International Economics

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