scholarly journals Winners and Losers in Customs Unions: An Experimental Investigation

2011 ◽  
Vol 2 (2) ◽  
pp. 49-72
Author(s):  
Baboo M Nowbutsing
Keyword(s):  
Comparative Advantage ◽  
Trade Diversion ◽  
Careful Consideration ◽  
Terms Of Trade ◽  
Trade Flows ◽  
Customs Union ◽  
Trade Effect ◽  
Customs Unions ◽  
The World ◽  
Ricardian Model

In the context of a Competitive Ricardian Model (CRM), one can ask whether it is possible to relate winners and losers from a CU based on comparative advantage considerations. This was pursued by Venables (2003), who showed that careful consideration of a country’s comparative advantage – with the rest of the world relative to that with its partners in the CU- yields predictions about winners and losers. Starting from initial tariff equilibrium, in a 3 country model with a continuum of goods, he shows that a country with ‘extreme’ comparative advantage will be more vulnerable to trade diversion. In this experiment, the 3 x 3 Competitive Ricardian Model (CRM) in two scenarios multiple import tariffs and a customs union. We fully characterise the equilibrium under both. Starting from a tariff distorted situation, we find that when a customs union is formed there is an increase in trade flows among members; a rise in individual consumption of some goods; a clear terms of trade effect and the existence of trade diversion. Our experimental results support the simulation findings of Venables (2003), who showed that countries which have ‘extreme’ comparative advantage in a customs union will generally be more vulnerable to trade diversion.

scholarly journals Do Free Trade Agreements Affect Tariffs of Nonmember Countries? A Theoretical and Empirical Investigation

2018 ◽  
Vol 10 (3) ◽  
pp. 128-170 ◽  
Author(s):  
Kamal Saggi ◽  
Andrey Stoyanov ◽  
Halis Murat Yildiz
Keyword(s):  
Free Trade ◽  
Empirical Investigation ◽  
Free Trade Agreements ◽  
Trade Diversion ◽  
Trade Agreements ◽  
Terms Of Trade ◽  
External Trade ◽  
Trade Data ◽  
Industry Level ◽  
The World

We investigate the effects of free trade agreements (FTAs) on tariffs of nonmember countries. In our multi-country model, the formation of an FTA leads members to reduce their exports to the rest of the world. Such external trade diversion weakens the ability of nonmembers to manipulate their terms of trade vis-à-vis FTA members, a mechanism that induces them to lower their tariffs on FTA members. We empirically confirm this insight using industry-level trade data for 192 importing and 253 exporting countries, along with information on all FTAs formed in the world during 1989–2011. (JEL F13, F14)

Comparative Advantage In The Southern Africa Customs Union (Sacu)

2013 ◽  
Vol 8 (2) ◽  
Author(s):  
Macleans Mzumara ◽  
Betty Mkwinda Nyasulu ◽  
Margaret Mzumara ◽  
Elias Kaunda
Keyword(s):  
South Africa ◽  
Comparative Advantage ◽  
Low Cost ◽  
Trade Diversion ◽  
Trade Creation ◽  
Customs Union ◽  
Product Lines ◽  
Common External Tariff ◽  
The Common ◽  
Narrow Base

The authors sought to find out whether the Southern African Customs Union (SACU) possesses comparative advantage. They found that South Africa has comparative advantage in the production of 727 product lines, Botswana in 268 product lines, Swaziland 243 product lines, Namibia 213 product lines and Lesotho 85 product lines. They also found that the highest degree of specialization in a particular product was observed in Lesotho in the production of cartridges for rivet with an average RCA index of 19215. The authors concluded that SACU has comparative advantage although such comparative advantage has a narrow base for a customs union (CU). Further it was concluded that due to imposition of the common external tariff (CET) in SACU and a narrow base of the products in which it has comparative advantage, it may be experiencing trade diversion rather than trade creation by replacing low cost producers outside SACU in favour of intra-SACU high cost producers. That South Africa, although not the least producer, is unfairly benefiting due to the imposition of CET which prevents other countries from exporting their products to Botswana, Swaziland, Namibia and Lesotho under the same conditions.  These countries are, therefore, disadvantaged. For this reason, the authors advocate communication at policy level, to facilitate expansion of SACU as means of narrowing trade diversion.

The effects of customs unions on the pattern and terms of trade in a Ricardian model with a continuum of goods

1989 ◽  
Vol 27 (1-2) ◽  
pp. 147-164 ◽  
Author(s):  
Dennis R. Appleyard ◽  
Patrick J. Conway ◽  
Alfred J. Field
Keyword(s):  
Terms Of Trade ◽  
Customs Unions ◽  
Ricardian Model

scholarly journals A Trade and Welfare Analysis of Tariff Changes Within the TPP

2016 ◽  
Vol 16 (1) ◽  
pp. 477-511 ◽  
Author(s):  
Juyoung Cheong ◽  
Shino Takayama
Keyword(s):  
Welfare Analysis ◽  
Trade Diversion ◽  
Trade Flows ◽  
Trade Creation ◽  
Welfare Gains ◽  
The World ◽  
Positive Externality ◽  
Tariff Reductions ◽  
Sectoral Linkages

Abstract This paper examines the effects of the Trans-Pacific Partnership (TPP) tariff reductions on trade flows and welfare of the TPP members and nonmembers following the Caliendo and Parro (2015) method. We use comprehensive sectoral data on 39 countries and the rest of the world, including those in the Association of Southeast Asian Nations (ASEAN) and the Organization for Economic Co-operation and Development (OECD). Our results show that many TPP nonmembers along with the TPP members gain from the TPP tariff reductions, suggesting the existence of a positive externality, with the welfare gains mainly arising from the changes in the terms of trade. Our analysis also shows that the TPP members increase their imports from other TPP members and decrease from non-TPP members, but the trade creation effects exceed the trade diversion effects. Our calibration results under various assumptions of the model emphasize the role of multiple sectors and sectoral linkages in the welfare analysis of the TPP tariff reductions.

TEACHING NOTE — CUSTOMS UNIONS VS. NON-PREFERENTIAL QUOTAS

2002 ◽  
Vol 47 (02) ◽  
pp. 269-273
Author(s):  
YEONG-HER YEH
Keyword(s):  
Terms Of Trade ◽  
Customs Union ◽  
Import Quota ◽  
Customs Unions

This paper intends to show that increasing a non-preferential import quota is always superior to joining a customs union, assuming that the customs union is small. However, increasing a non-preferential input quota is not necessarily superior to joining a customs union if the customs union is large and capable of influencing the terms of trade.

scholarly journals Diversion et création d’échanges commerciaux dans le cadre du système canadien de préférences tarifaires

2009 ◽  
Vol 55 (1) ◽  
pp. 68-81
Author(s):  
Jaleel Ahmad
Keyword(s):  
Developing Countries ◽  
Product Category ◽  
Trade Diversion ◽  
Trade Flows ◽  
Trade Creation ◽  
Customs Union ◽  
Major Conclusion ◽  
Usual Assumption ◽  
Trade Preferences ◽  
Perfect Substitution

This paper explores in quantitative terms the potential effects on trade flows as a result of Canadian tariff preferences in favor of the developing countries instituted in 1974. The paper develops a model of trade creation and trade diversion due to preferences based on imperfect substitution, within each product category, between preference-granting, preference-receiving and non-preferred countries. This model depart from the usual assumption of the customs union theory that countries trade in perfect substitutes. The model is then applied to the 1978 trade date under BTN chapters 25 - 99 on a 4-digit classification. One major conclusion of the paper is that the assumption of perfect substitution tends to overstate the magnitude of trade creation and trade diversion, while the method based on less than perfect substitutability seems to offer more realistic estimates of the actual impact of trade preferences.

scholarly journals Tariff Equilibrium with Customs Union

1994 ◽  
Vol 33 (4II) ◽  
pp. 1217-1228
Author(s):  
Subidey Togan
Keyword(s):  
Terms Of Trade ◽  
Customs Union ◽  
Common External Tariff ◽  
Non Union ◽  
The World ◽  
Tariff Rates ◽  
The Common ◽  
Group Welfare

It is well known from Kemp and Wan (1976) that under customs union an increase in group welfare can occur without affecting that of the rest of the world whenever the common external tariff is positioned in a way so as to offset exactly the terms of trade and export quantity effects felt by it. The purpose of this paper is to study the effects of the customs union starting from arbitrary given initial tariff rates and determine cases when the union as well as the non-union countries may gain from the formation of the customs union.

Trade Creation or Trade Diversion in ASEAN and ASEAN+6 FTAs: Trade Indicators Approach

2015 ◽  
pp. 25-41
Author(s):  
Anh Tu Thuy ◽  
Ngoc Le Minh
Keyword(s):  
Comparative Advantage ◽  
Wheat Gluten ◽  
Free Trade Area ◽  
Private Investment ◽  
Trade Diversion ◽  
Trade Creation ◽  
Public And Private ◽  
Trade Area ◽  
Economic Partnership ◽  
Regional Comprehensive Economic Partnership

This paper makes use of two trade indicators, Revealed Comparative Advantage (RCA) and Regional Orientation (RO), to evaluate the economic impacts of the ASEAN Free Trade Area (The) and the Regional Comprehensive Economic Partnership (RCEP) on Vietnamese commodities at the Harmonized System (HS) 2-digit level. Several sectors in which Vietnam has revealed a comparative advantage, has benefited from the AFTA, and would continue to enjoy trade creation from the RCEP, are: Cereals (10), Salt, sulphur, earth, stone, plaster, lime and cement (25), Rubber (40), Knitted or crocheted fabric (60), etc. More importantly, the result provides a list of commodities in which Vietnam has a comparative advantage and only experiences trade creation when participating in the RCEP. These are: Milling products, malt, starches, inulin, wheat gluten (11), Vegetable plaiting materials, vegetable products not elsewhere specified (14), Wood and articles of wood, wood charcoal (44), etc. Findings also show commodities in which Vietnam has a comparative advantage; but are not well positioned in the RCEP market yet, e.g. Cereal, flour, starch, milk preparations and products (19) and Manmade staple fibres (55). If sufficient investment decisions and marketing strategies are applied to these commodities, they will well penetrate the RCEP market and bring trade creation and welfare improvement to Vietnam. Public and private investment should consider the above-mentioned commodities as targets to leapfrog the benefits of RCEP.

scholarly journals Impact of alternative regional trade arrangements on the Ethiopian economy

2021 ◽  
Vol 10 (1) ◽  
Author(s):  
Habtamu Shiferaw Amogne ◽  
Taiji Hagiwara
Keyword(s):  
Transition Period ◽  
Terms Of Trade ◽  
Endowment Effect ◽  
Welfare Loss ◽  
Customs Union ◽  
Regional Trade ◽  
Partnership Agreement ◽  
Saving Effect ◽  
The Impact ◽  
Trade And Investment

AbstractThe Common Market for Eastern and Southern Africa (COMESA) is a Free Trade Area (FTA) regional trade agreement in Africa. Currently, Ethiopia is negotiating to join COMESA FTA. This study assesses the impact of three regional trade arrangements, COMESA FTA, customs unions, and the European Partnership Agreement (EPA) on the economy of Ethiopia. The analysis is based on a static Global Trade Analysis Project (GTAP) model, version 9 database. Unlike previous studies, the customs union scenarios are designed at the detailed Harmonized System (HS) level. COMESA FTA (scenario 1) with standard GTAP model results in a welfare loss for Ethiopia due to negative terms of trade and investment-saving effect, but with unemployment closure (scenario 2); Ethiopia enjoys a welfare gain mainly due to endowment effect. In scenario 3 (COMESA customs union) and scenario 4 (European Partnership Agreement), Ethiopia loses due to negative terms of trade and investment-saving effect. There is a large increase in demand for unskilled labor force in Ethiopia by around US$23 million, US$112 million, and US$43 million for scenario 2, 3, and 4 respectively. Moreover, there is a positive output effect for oilseeds, leather, and basic metals across all scenarios. The world, as a whole, enjoys welfare gains with COMESA FTA (scenario 1 and 2). However, with scenario 3 and 4, there is an overall welfare loss. There is no strong reason for Ethiopia to move to the customs union, and the EPA in the short run. Therefore, a transition period is necessary, but it is recommended for Ethiopia to join COMESA FTA.

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