TY - JOUR
T1 - Vertical trade and free trade agreements
AU - Kawabata, Yasushi
AU - Yanase, Akihiko
AU - Kurata, Hiroshi
N1 - Funding Information:
We thank Kenzo Abe, Ichiroh Daitoh, Taiji Furusawa, Yoichi Hizen, Jun-ichi Itaya, Yukio Karasawa, Kazuharu Kiyono, Noritaka Kudoh, Kazuo Machino, Ryoichi Nomura, Masao Oda, Takao Ohkawa, Makoto Okamura, Masayuki Okawa, Chisato Shibayama, Nobuhito Suga, Yasunobu Tomoda, Keiichi Umada, Shigemi Yabuuchi, Chisato Yoshida, and two anonymous referees for their constructive comments and suggestions. The usual disclaimer applies. This work has been financially supported by the Japan Economic Research Foundation and Grants-in-Aid for Scientific Research (C) (No. 21530217 ).
PY - 2010/12
Y1 - 2010/12
N2 - We investigate the effects of free trade agreements (FTAs) on tariffs and welfare in vertical trade. We consider a three-country model, where an FTA is formed between a country exporting a final good and a country exporting an intermediate good. The FTA unambiguously leads to a reduction in the member country's tariff, but may cause the non-member country's tariff level to increase. In the case, where FTA raises the non-member country's tariff level, the FTA increases that country's welfare. In contrast, the FTA may render its member countries better off. This result implies that the formation of an FTA may not always be Pareto-improving.
AB - We investigate the effects of free trade agreements (FTAs) on tariffs and welfare in vertical trade. We consider a three-country model, where an FTA is formed between a country exporting a final good and a country exporting an intermediate good. The FTA unambiguously leads to a reduction in the member country's tariff, but may cause the non-member country's tariff level to increase. In the case, where FTA raises the non-member country's tariff level, the FTA increases that country's welfare. In contrast, the FTA may render its member countries better off. This result implies that the formation of an FTA may not always be Pareto-improving.
KW - Cournot competition
KW - Free trade agreements
KW - Vertical trade
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U2 - 10.1016/j.jjie.2010.03.002
DO - 10.1016/j.jjie.2010.03.002
M3 - Article
AN - SCOPUS:78649771858
SN - 0889-1583
VL - 24
SP - 569
EP - 585
JO - Journal of the Japanese and International Economies
JF - Journal of the Japanese and International Economies
IS - 4
ER -