More (or less) on necessarily welfare-enhancing free trade Areas

This note considers the extension of the Kemp-Wan theorem on necessarily welfareimproving customs unions to free trade areas. It suggests that the value of this extension is undermined by its very rationale – the greater popularity of free trade areas over customs unions for ‘political’ reasons.UnpublishedArmington, P.S., 1969, “A Theory of Demand for Products Distinguished by Place of Production.” IMF Staff Papers, 16: 159-76. Dimaranan, B.V. and McDougall, R.A., 2005, Global Trade, Assistance, and Production: the GTAP 6 Data Base. Centre for Global Trade Analysis, Purdue University. Dixit, A., and V. Norman, 1980, Theory of International Trade. Cambridge University Press: Cambridge. Grinols, Earl L., and Peri Silva, 2003, "An Enhancement of Modern Free Trade Area Theory." In Office of Research Working Paper Series, 8. Urbana-Champaign: University of Illinois at Urbana-Champaign. Kemp, Murray C., and Koji Shimomura, 2001, "A Second Elementary Proposition Concerning the Formation of Customs Unions." Japanese Economic Review 52#1, 64-69. Kemp, Murray C., and Henry Y. Jr. Wan, 1976, "An Elementary Proposition Concerning the Formation of Customs Unions." Journal of International Economics 6, 95-97. Ohyama, Michihiro, 2002, "The Economic Significance of the Gatt/WTO Rules." In Economic Theory and International Trade: Essays in Honour of Murray C. Kemp, edited by Alan D. Woodland, 71-85. Cheltenham, U.K.: Edward Elgar. Panagariya, Arvind, and Pravin Krishna, 2002, "On Necessarily Welfare-Enhancing Free Trade Areas." Journal of International Economics 57, 353-67. Richardson, Martin, 1995, "On the Interpretation of the Kemp/Wan Theorem." Oxford Economic Papers 47#4, 696-703. ———, 1995, "Tariff Revenue Competition in a Free Trade Area." European Economic Review 39#7, 1429-37. Rutherford, T.F., 2005. GTAP6inGAMS: The dataset and static model [online]. Ann Arbor, MI. Available at http://www.mpsge.org/gtap6/gtap6gams.pdf [Accessed 29 May 2006]