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Handbook of Trade Policy for Development$
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Arvid Lukauskas, Robert M. Stern, and Gianni Zanini

Print publication date: 2013

Print ISBN-13: 9780199680405

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199680405.001.0001

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Preferential Trade Agreements

Preferential Trade Agreements

Chapter:
(p.67) Chapter 3 Preferential Trade Agreements
Source:
Handbook of Trade Policy for Development
Author(s):

Pravin Krishna

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199680405.003.0003

Pravin Krishna provides the analytical tools for evaluating the economic effects of preferential trade agreements (PTAs) on member and non-member countries. He demonstrates that PTAs have ambiguous welfare effects, with net benefits largely depending on whether they are trade creating or trade diverting. Contrary to conventional wisdom, he finds that claims in favor of geographic proximity or regionalism as a basis for extending trade preferences are not supported theoretically or empirically. This suggests that other factors, such as the wish to forge closer political ties, probably also motivate countries to seek regional PTAs. Krishna argues that PTAs can be designed in ways that limit trade diversion and augment their welfare-enhancing effects, but WTO rules do not encourage these results. A widely debated topic surrounding PTAs is whether they distract from or support multilateral trade liberalization. Krishna finds that the academic literature is divided on these issues.

Keywords:   Preferential trade agreements, trade creation, trade diversion, regionalism, WTO, multilateral trade, welfare effects PTAs, RTAs, FTAs, open, regionalism

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