Market Access and Welfare Effects of Free Trade Areas without Rules of Origin

Jiandong Ju, Kala Krishna

NBER Working Paper No. 5480
Issued in March 1996
NBER Program(s):   ITI

The market access and welfare effects of Free Trade Areas (FTAs) without Rules of Origin (ROOs) are studied. We consider both the final and intermediate goods markets and their interlinkage. The FTA weakly reduces all tariffs and prices within the FTA. This raises quantity demanded and reduces quantity supplied for both the final and intermediate goods, thereby raising imports. This is the classic trade creation effect and is welfare improving. We identify two additional effects which work in the opposite direction and identify conditions under which these welfare reducing, import reducing effects dominate.

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Published: Ju, Jiandong and Kala Krishna. "Welfare And Market Access Effects Of Piecemeal Tariff Reform," Journal of International Economics, 2000, v51(2,Aug), 305-316.

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