Preferential Trading Arrangements (PTAs)

Paper Summary:

This paper relates that the cost of trade diverting because of the efficiency costs of regional trade arrangements is larger than preferential trade agreement (PTA) proponents recognize. The author points out that these costs arise because (1) the claim that regional trade arrangements minimize trade diversion by grouping natural trading partners is wrong and because (2) the volume of trade flows between countries, another popular indicator, is not a good proxy of naturalness. The paper concludes that these two critiques of the static welfare effects of preferential trading arrangements suggest that the trade diverting effects are likely to be larger and the trade-creating effects are likely to be smaller than proponents of PTAs claim.

Table of Contents
Preferential Trading Arrangements (PTAs) through Free Trade Arrangements
Whether PTAs are Trade Expanding or Trade Diverting?
Conclusion

From the Paper:

"Asian-Pacific Economic Cooperation (APEC), an initiative that brings together nineteen countries on both sides of the Pacific, was launched in 1989. The apparent shift in world trading arrangements has generated debate within policy and academic circles about the implications for global economic welfare. One set of protagonists in that debate, including high profile members of Clinton's economic team, such as Lawrence Summers, actively promotes PTAs."

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