Geographically-Discriminatory Trade Policies Flashcards
what is most favoured nation principle
members are bound to grant products of other members treatment not less favourable than that accorded to the products of any other country
define trade creation
replacement of less efficient regional producers by other more efficient regional producers
- welfare raising
define trade diversion
replacement of more efficient producers outside region by less efficient producers inside region
- welfare lowering
balance of trade creating and diverting effects and net welfare effects of regionally discriminatory trade policies ambiguous, but more likely to be ebenficial if:
- regional grouping large in terms of share of world GDP
- region includes globally efficient producers
- external trade barriers low
- internal trade barriers eliminated
- if there are other positive terms of trade or scale effects
issues with preferential trade agreement (PTA) and CU analysis
specification
- gravity models indicate we should account for relative price level in two countries but has been omitted
reverse causality
- RTAs and CUs may be signed by country pairs that already trade a lot
omitted variable bias
- RTAs and CUs may be signed by country pairs that have other characteristics that facilitate trade
what is cooper-massell proposition
under standard 1st best assumptions adopted, there’s always non-geographically discriminatory trade policy that is superior in welfare terms to a customs union
consequences of increasing growth
1) increased competition
2) increased technological spillovers
3) increased scope for agglomeration economies
arguments in favour of brexit
1) UK regain control over migration policy as free labour mobility with EU ends
- return migration back to eastern europe
2) UK strike new trade agreements post brexit
3) leaving EU will allow country to deregulate economy
- already has less regulation than rest of EU so limited scope for further deregulation
