IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1668.html
   My bibliography  Save this paper

Small is beautiful : preferential trade agreements and the impact of country size, market share, efficiency, and trade policy

Author

Listed:
  • Schiff, Maurice

Abstract

There has been a resurgence of preferential trade agreements (PTAs). This has led to renewed debate about how PTAs affect both welfare and the multilateral system. The author examines two ideas: the welfare impact of PTAs and the effect of structural and policy changes on PTAs. He asks how the PTA's effect on home-country welfare is affected by higher imports demand; the production efficiency of the partner or rest of the world; the share imported from the other partner; and the initial protection on imports from the partner. There are several findings. An individual country benefits more from a PTA if it imports less from its partner countries. A small home country loses from forming a free trade agreement with a small partner country, but gains from forming one with the rest of the world. In other words, the home country is better off as a small member of a large bloc than as a large member of a small bloc. This result need not hold if smuggling is a factor. Home country welfare after formation of a free trade agreement (FTA) is higher when imports from the partner country are smaller, whether the partner country is large or small. Welfare worsens as imports from the partner country increase. In general a PTA is more beneficial for a country with lower import demand. A PTA is also more beneficial for a country with an efficient import-substituting sector. A small country may gain from forming a PTA when smuggling is a factor.

Suggested Citation

  • Schiff, Maurice, 1996. "Small is beautiful : preferential trade agreements and the impact of country size, market share, efficiency, and trade policy," Policy Research Working Paper Series 1668, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1668
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1996/10/01/000009265_3961214192643/Rendered/PDF/multi0page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Baldwin,Richard & Haapararanta,Pertti & Kiander,Jaakko (ed.), 1995. "Expanding Membership of the European Union," Cambridge Books, Cambridge University Press, number 9780521481342.
    2. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
    3. Rolf J. Langhammer, 1992. "The Developing Countries and Regionalism," Journal of Common Market Studies, Wiley Blackwell, vol. 30(2), pages 211-232, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hoekman, Bernard & Konan, Denise Eby, 1999. "Deep integration, nondiscrimination, and Euro-Mediterranean free trade," Policy Research Working Paper Series 2130, The World Bank.
    2. Getachew, Asgedom Tessema & Tadele, Ferede & Arega, Hailu & Fantu, Guta, 2005. "The Impact of Regional Economic Cooperation on the Ethiopian Manufacturing Sector: the Case of Common Market for Southern and Eastern Free Trade Area (COMESA-FTA)," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 10(1), pages 1-98, May.
    3. Volpe Martincus, Christian & Siedschlag, Iulia, 2010. "The Impact of South-South Preferential Trade Agreements on Industrial Development: An Empirical Test," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 69-104.
    4. Schiff, Maurice, 2001. "Will the Real “Natural Trading Partner” Please Stand Up?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 245-261.
    5. Andriamananjara, Soamiely & Schiff, Maurice, 1998. "Regional groupings among microstates," Policy Research Working Paper Series 1922, The World Bank.
    6. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade 0109001, University Library of Munich, Germany.
    7. Schiff, Maurice, 2002. "Regional integration and development in small states," Policy Research Working Paper Series 2797, The World Bank.
    8. Volpe Martincus, Christian & Siedschlag, Iulia, 2010. "The Impact of South-South Preferential Trade Agreements on Industrial Development: An Empirical Test," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 69-104.
    9. Osman, Rehab Osman Mohamed, 2012. "The EU Economic Partnership Agreements with Southern Africa: a computable general equilibrium analysis," Economics PhD Theses 0412, Department of Economics, University of Sussex Business School.
    10. Neil Foster & Robert Stehrer, 2011. "Preferential trade agreements and the structure of international trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(3), pages 385-409, September.
    11. Luca Brandi, 2004. "The Economy of Small States," Rivista di Politica Economica, SIPI Spa, vol. 94(6), pages 145-173, November-.
    12. Waldkirch, Andreas, 2006. "The ‘New Regionalism’: Integration as a Commitment Device for Developing Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 397-425.
    13. Justyna Wieloch, 2015. "Kraje rozwijające się w ugrupowaniach integracyjnych / Developing Countries in Economic Agreements," International Economics, University of Lodz, Faculty of Economics and Sociology, issue 9, pages 40-49, March.
    14. Moelders, Florian, 2011. "Trade Persistence and the Limits of Trade Agreements," Proceedings of the German Development Economics Conference, Berlin 2011 58, Verein für Socialpolitik, Research Committee Development Economics.
    15. Kaminski, Bartlomiej & de la Rocha, Manuel, 2003. "Stabilization and association process in the Banlkans : integration options and their assessment," Policy Research Working Paper Series 3108, The World Bank.
    16. Huria, Sugandha, 2020. "Gains from Free Trade Agreements: A Theoretical Analysis," MPRA Paper 109815, University Library of Munich, Germany.
    17. Denise Eby Konan & Keith E Maskus, 2000. "Bilateral Trade Patterns and Welfare: An Egypt-EU Preferential Trade Agreement," Working Papers 200001, University of Hawaii at Manoa, Department of Economics.
    18. Bergschmidt, Angela & Hartmann, Monika, 1998. "Agricultural trade policies and trade relations in transition economies," IAMO Discussion Papers 12, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    19. Lucio Castro, 2005. "Regional Trade Integration in East Africa: Trade and Revenue Impacts of the Planned East African Community Customs Union," International Trade 0509005, University Library of Munich, Germany.
    20. Bergschmidt, Angela & Hartmann, Monika, 1998. "Agricultural Trade Policies And Trade Relations In Transition Economies," IAMO Discussion Papers 14896, Institute of Agricultural Development in Transition Economies (IAMO).
    21. Burfisher, Mary E. & Robinson, Sherman & Thierfelder, Karen, 2000. "Small countries and the case for regionalism vs. multilateralism," TMD discussion papers 54, International Food Policy Research Institute (IFPRI).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rupa Duttagupta & Arvind Panagariya, 2007. "Free Trade Areas And Rules Of Origin: Economics And Politics," Economics and Politics, Wiley Blackwell, vol. 19(2), pages 169-190, July.
    2. Baldwin, Richard Edward & Rieder , Roland, 2007. "A Test of Endogenous Trade Bloc Formation Theory on EU Data," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 11(2), pages 77-110, December.
    3. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
    4. Mette Ersbak Bang Nielsen, 2006. "The endogenous formation of sustanaible trade agreements," Revista de Economía del Rosario, Universidad del Rosario, June.
    5. Richard E. Baldwin, 2011. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocks on the Path to Global Free Trade," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 2, Edward Elgar Publishing.
    6. Richard E. Baldwin, 2008. "Managing The Noodle Bowl: The Fragility Of East Asian Regionalism," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 53(03), pages 449-478.
    7. Baldwin, Richard & Jaimovich, Dany, 2012. "Are Free Trade Agreements contagious?," Journal of International Economics, Elsevier, vol. 88(1), pages 1-16.
    8. Caroline L. Freund, 2000. "Spaghetti regionalism," International Finance Discussion Papers 680, Board of Governors of the Federal Reserve System (U.S.).
    9. Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc.
    10. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
    11. Scott L. Baier & Jeffrey H. Bergstrand & Ronald Mariutto, 2014. "Economic Determinants of Free Trade Agreements Revisited: Distinguishing Sources of Interdependence," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 31-58, February.
    12. Sulamaa, Pekka & Widgrén, Mika, 2005. "Asian Regionalism versus Global Free Trade: A Simulation Study on Economic Effects," Discussion Papers 985, The Research Institute of the Finnish Economy.
    13. Filip Abraham & Jan Van Hove, 2005. "The Rise of China: Prospects of Regional Trade Policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(3), pages 486-509, October.
    14. Caroline L. Freund, 1998. "Multilateralism and the endogenous formation of PTAs," International Finance Discussion Papers 614, Board of Governors of the Federal Reserve System (U.S.).
    15. Fritz Breuss, 2013. "Die Größe der Kleinen in der EU," WIFO Working Papers 452, WIFO.
    16. Soliman, Marwan, 2004. "Regional Networking and Multilateral Context: Enhancing Capabilities in Africa," 2004 Inaugural Symposium, December 6-8, 2004, Nairobi, Kenya 9528, African Association of Agricultural Economists (AAAE).
    17. Portes, Richard, 2001. "A Monetary Union in Motion: the European Experience," CEPR Discussion Papers 2954, C.E.P.R. Discussion Papers.
    18. Ms. Giorgia Albertin, 2007. "Will a Regional Bloc Enlarge?," IMF Working Papers 2007/069, International Monetary Fund.
    19. Mr. Arvind Panagariya & Rupa Duttagupta, 2003. "Free Trade Areas and Rules of Origin: Economics and Politics," IMF Working Papers 2003/229, International Monetary Fund.
    20. Kubota, Keiko, 2000. "Trade negotiations in the presence of network externalities," Policy Research Working Paper Series 2317, The World Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1668. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.