TY  - JOUR
AU  - Frankel,Jeffrey A.
AU  - Stein,Ernesto
AU  - Wei,Shang-Jin
TI  - Regional Trading Arrangement: Natural or Super-Natural?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5431
PY  - 1996
Y2  - January 1996
UR  - http://www.nber.org/papers/w5431
L1  - http://www.nber.org/papers/w5431.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu

Ernesto Stein
Kennedy School of Government
Littauer Bldg
79 J F Kennedy Street
Cambridge, MA 02138
E-Mail: ernestos@iadb.org

Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
AB  - This paper summarizes recent research by the authors on the effects of free trade areas (FTAs).  Within our model, which emphasizes inter-continental transport costs, several conclusions arise.  (1) FTAs are likely to be detrimental over a moderate range of parameter values, even if drawn along natural regional lines.  (2) A small margin of preferences for neighbors is beneficial.  (3) Optimal preferences depend on the parameters, particularly on transport costs. (4) If preferences are raised further, they enter the zone of negative returns to regionalization, and eventually the super-natural zone, where welfare is lower than under the MFN status quo.  Estimates from the gravity model suggest the world system may already be in the super-natural zone.  The core model leaves out many factors.  But we have pursued a variety of extensions by now.  Perhaps the two most important are generalizing the highly stylized model of trade (to include factor endowments), and relaxing the assumption that the inter-bloc level of tariffs remains fixed.  In the latter case, allowing tariffs to be endogenous yields a much more optimistic outlook for the effects of FTAs.
ER  -