Why Is Open Regionalism Not Always Good?

1995

Review of International Economics, 2008

We assume an imperfectly competitive world with n commodities and address the question of whether or not (regional) trade blocs are viable. To answer this fundamental question, we use a notion of stability, offered by Greenberg (1990), and show that regional trade blocs are not viable as they are not stable. On the other hand, we demonstrate that a global trade bloc is viable. Therefore, our results provide theoretical support for advocates of global free trade.

Marmara Avrupa araştırmaları dergisi, 2015

Regional trading arrangements (RTAs) became popular in the last decade while the trade negotiations of the Uruguay Round continued under the multilateral track of GATT. This Article reopens a discussion that has divided both economists and policy makers as to whether the trend towards "regionalismn in world trade helps to move the process of multilateral trade liberalization forward or leads to more protectionist preferential/discriminatory practices, thereby undermining the multilateral approach of GATT. The authors, in this study, assess the fallacious view that equates regional freeing of trade with "free traden itself and advocate a ''public choicen approach arguing that whatever the motivations are for the regionalism, they may, on the other hand, give rise to abuse by domestic interest groups for protectionist purposes and therefore endanger the liberalization of the world trading system.

Journal of Asian Economics, 2003

This paper begins by outlining the major preferential trade agreements (PTAs) in Asia and other regions and reviewing trends in trade flows. The paper uses a gravity model augmented with several sets of dummy variables to estimate the effect of various PTAs on trade flows within and across membership groupings as well as the effect of PTAs on members' trade with Asian countries. On the basis of these estimates, we are able to categorize 11 major PTAs into those that increase intrabloc trade at the expense of their respective imports from the rest of the world; those that expand their respective trade among their members without reducing their trade with nonmembers; and those that reduce trade with nonmembers without significant changes in intrabloc trade. The authors also show that PTAs have augmented trade in Asia. #

2005

Dr. Supachai Panitchpakdi, the present WTO Director General, sum marizes the threat posed by the proliferation of RTAs to the WTO mechanism when in a speech he says: "Regionalism can be a powerful complement to the multilateral system, but it cannot be a substitute. The multilateral trading system was created after the Second World War precisely to prevent the dominance of rival trading blocks. The resurgence of regionalism today risks signaling a failure of global economic cooperation and a weakening of support for multilateralism. It threatens the primacy of the WTO, and foreshadows a world of greater fragmentation, conflict, and marginalization, particularly of the weakest and poorest countries" 9

International Trade, 2005

analysing the trade and welfare effects of RTAs from both theoretical and empirical bases. 3 However, it remains an open question whether RTAs create substantial trade creation and diversion, and there occurs net positive trade creation effect. 4 Krugman (1993) presents a model in which regional integration creates trade diversion because members raise the external tariff. However, as long as external trade barriers are not very high, trade diversion can be smaller. Clearly trade diversion can occur with discriminatory, but not most favoured nation (MFN), tariff reductions. Aside from the immediate impact of RTAs on trade, there is an evolution of trade creation and diversion effects. For instance, an RTA influences long-run growth of member countries and then may have spillover effects on outsiders in the long run. By estimating the static effects of RTAs, some empirical studies suggest that RTAs expand intra-bloc trade but contract trade with non-member countries. However, as increased trade between member countries expands market size, creates more investment, and results in income growth over time, RTAs can provide non-member countries with increased opportunities to exploit the larger market, thereby reducing the problem of trade diversion. This growth effect turns RTAs into 'building blocs' toward global free trade as emphasised in Baldwin (1995) and Laird (1999). Lawrence (1996) indicates that the growth effects of RTAs offset the initial trade diversion effect because import demand from non-members can be stimulated by growth or economies of scale over time. In addition to the positive growth effect on extra-bloc trade, there exists an efficiency gain expected from external economies of scale as the industry's output expands with the formation of a bigger regional trade bloc (Viner, 1950). Wonnacott and Lutz (1989) and Wonnacott (1996) also highlight the importance of economies of scale that increase the efficiency of inefficient members by lowering their cost of production enough to reduce the likelihood of trade diversion. In addition, Wonnacott (1996) argues that trade diversion may force import-competing industries in a member country to reduce their trade barriers against non-members because of increased competition from RTAs. On the other hand, a number of studies address the issues of RTA membership to examine whether some characteristics of the members are important in raising the net gains from an RTA. Wonnacott and Lutz (1989), Summers (1991), Krugman (1993) and Frankel et al. (1995) introduce the concept of 'natural trading partner' by arguing that some characteristics of RTA members can maximise the positive welfare gains from RTAs. They find that with larger pre-RTA trade volumes

Discussion Papers, 2005

This paper evaluates and compares the economic effects of global liberalization of world trade and regional integration scenario in which an Asian trading block is emerging. The evaluation is based on computable general equilibrium model GTAP (global trade analysis project) that has been widely used in analyses of big regime changes in world economy. The results show that global free trade is better for all regions in the investigation. Compared to the current trade regime, that does not hold since e.g. the new EU member states would be worse-off. The biggest winners of global free trade are Asian countries, Brasilia and developing countries. At industry level the results show regional concentration tendencies in production of agriculture, energy sector and in textile, paper and car industries. 1 we thank O.S. Oladipo of University of Birmingham, UK for constructive comments.

Journal of Economic Literature, 2000

This paper begins by systematically developing the “static” theory of preferential trade areas (PTAs) and showing that neither a large volume of initial intra-union trade nor geographical proximity can serve as a guide to welfare enhancing PTAs. The paper then discusses the modern literature addressing welfare effects of simultaneous division of the world into many PTAs, the impact of the decision to form a PTA on external tariffs and the “dynamic” time-path question of whether PTAs are building blocks or stumbling blocks towards multilateral freeing of trade. A final section discusses key theoretical considerations in the empirical evaluation of PTAs.

Global Economy at the Crossroads Trends in the World Economy vol. 8/2016, 2016

The aim of the study is to analyse the trade regionalism in the Asia-Pacific region, and identify the changes in the features of that process that took place from 1985 to 2015. The study was divided into two parts. The first one contains the characteristics of preferential trade agreements in the Asia-Pacific. The second investigate the role of megaregional trade agreements in creations a newmodel of integration in the Asia-Pacific. The analysis performed in this study aims to verify two hypotheses which have been formulated as follows: 1) The third wave of trade regionalism that began after the creation of the World Trade Organisation is a period of the greatest increase in the number and scope of preferential trade agreements in the Asia-Pacific region; 2) The proliferation of preferential trade agreements in the region is a result of the breakdown of the Doha Round negotiations.