Can a Regional Trade Agreement Benefit a Nonmember Country without Compensating It? |
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| Authors: | Masahiro Endoh Koichi Hamada Koji Shimomura |
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| Institution: | 1. +81‐3‐5427‐1277+81‐3‐5427‐1578;2. Faculty of Business and Commerce, Keio University, , Tokyo, 108‐8345 Japan;3. Department of Economics, Yale University, , New Haven, CT, 06520‐8269 USA;4. Research Institute for Economics and Business Administration, Kobe University, , Kobe, 657‐8501 Japan |
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| Abstract: | RTAs are generally formed without any tariff concessions or transfers to nonmember countries. Can such an RTA benefit nonmembers' welfare? In a two‐good three‐country competitive equilibrium model in the absence of an entrepôt, an RTA without concessions to a nonmember will hurt nonmembers' welfare when goods are normal. If one of the member countries is an entrepôt, however, it definitely improves nonmembers' welfare. In a three‐good three‐country model, an RTA without concessions damages the nonmember's welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small. |
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