Continental Trading Blocs: Are They Natural or Supernatural?

Jeffrey A. Frankel, Ernesto Stein and Shang-jin Wei

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:
Continental Trading Blocs: Are They Natural or Supernatural?

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The world trading system seems to be moving, not just to a system of regional free trade areas (FTAs) but to a system of large continental groupings. In Europe, the European Union (formerly the European Community) removed internal barriers in 1992 and admitted three new members in 1994, bringing the total to fifteen. In December 1994, the leaders of Western Hemisphere countries met in Miami and agreed to form an FTA for the Americas. This paper investigates three questions. According to bilateral trade data, is the world indeed breaking up into a small number of continental trade blocs? In theory, is a small number of continental blocs good or bad for world economic welfare? For actual parameter values, is the current pattern of trade regionalization welfare-promoting or welfare-reducing? The welfare implication of continental blocs depends on the values of some crucial parameters. This chapter focuses on the real-world counterparts of these key parameters, particularly the magnitude of transport costs.

Keywords: continental trade blocs; free trade areas; economic welfare; bilateral trade; transport costs; trade regionalization

Chapter.  13278 words.  Illustrated.

Subjects: International Economics

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