The WTO that contains 162 countries is the most popular one a truly multilateral forum for trade liberalisation. As their name suggests these RTBs/FTAs are arrangements aimed for faster trade liberalisation at regional levels.Ĭountries are convinced that trade is an engine of growth and they are searching for arrangements that promote trade.
Estimates suggest that trading blocs on the order of the EC are in fact super-natural.Regional Trading Blocs and Economic Integrationįrom Asia’s Rise in the New World Trade Orderįrom What is Regional Trade Blocs or Free Trade Agreements?Īs trade integration across countries is intensifying, we hear more and more about Free Trade Agreements (FTAs) and Regional Trade Blocs (RTBs). We conclude the paper with an attempt to extract estimates of transportation costsįrom the statistics. We find that multiple Mks on each continent could lower welfare, but that multiple PTAs, with partial internal liberalization, would raise welfare. (3) The formation of several sub-regional PTAs on each continent. The super-natural zone, where the regional trading arrangement reduces welfare, occurs for combinations of low inter-continental transport costs and high intra-bloc preferences, i.e., when the regionalization of trade policy exceeds what is justified by natural factors. We find that partial liberalization within a regional Preferential Trading Arrangement (PTA) is better than 100 percent liberalization, in contrast to the Article 24 provision of the GATT. We call such welfare-reducing blocs supernatural.(2) Partial regionalization. We show that it is not only Krugman's "unnatural" FTAs that can leave everyone worse off than under MFN, but that under conditions of relatively low intercontinental transport costs, FTAs that are formed along natural continental lines can do so as well. We consider three applications of the model. We complete the model of the welfare implications of trading blocs for the realistic case where intercontinental transport costs are neither so high as to be prohibitive nor as low as the costs among neighbors. In this paper we attempt to resolve the Krugman vs. Trading blocs, provided the blocs are drawn along the "natural" geographic lines of theĬontinents, in a model that assumes prohibitively high transportation costs between continents. He has supplied another argument in favor of Krugman has supplied an argument against a world of three trading blocs (that they would be protectionist), in a model that assumes no transport costs. We then turn from the econometrics to an analysis of economic welfare. In East Asia, on the other hand, increased intra-regional trade can be explained entirely by the rapid growth of the economies. Trade bias within MERCOSUR increased the most rapidly during the 1980s. and Canada along with the Asian Pacific countries). The strongest grouping in most years is APEC (Asia Pacific Economic Cooperation,which includes the U.S. Within the Western Hemisphere, MERCOSUR and the Andean Pact countries appear to function as significantly independent trading areas, but NAFTA much less so (as of 1990). Intra-regional trade is greater than could be explained by natural determinants: the proximity of a pair of countries, their sizes and GNP/capitas, and whether they share a common border or a common language. Using the gravity model to examine bilateral trade patterns throughout the world, we findĮvidence of trading blocs in the European Community, the Pacific, and the Western Trade policies) good or bad? This paper attempts to answer both questions. Is the world breaking up into three trading blocs, one in the Americas, one in EuropeĪnd one in Pacific Asia? If so, is this deviation from the principle of MFN (nondiscriminatory