Working Paper: CEPR ID: DP3572
Authors: Pascalis Raimondos-Møller; Alan D. Woodland
Abstract: This Paper examines the welfare implications of non-discriminatory tariff reforms by a subset of countries, which we term a non-preferential trading club. We show that there exist coordinated tariff reforms, accompanied by appropriate income transfers between these countries, which unambiguously increase the welfare of these member countries while leaving the welfare of non-members unaltered. These tariff reforms are chosen to maintain world prices at their pre-club levels and, in this respect, the trading clubs act in a Kemp-Wan-like manner. In terms of economic policy implications, our results show that there exist regional, MFN-consistent arrangements that lead to Pareto improvements in world welfare. Open regionalism is an example of such trading arrangements.
Keywords: customs unions; kempwan proposition; nonpreferential tariff policies; open regionalism; trading clubs
JEL Codes: F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| coordinated tariff reforms + income transfers (F16) | welfare of member countries (I30) |
| coordinated tariff reforms + income transfers (F16) | Pareto optimal welfare improvement (D69) |
| coordinated tariff reforms + income transfers (F16) | maintenance of world prices at preclub levels (P22) |
| coordinated tariff reforms + income transfers (F16) | welfare of nonmember countries (I30) |