Vertical trade and free trade agreements

Yasushi Kawabata, Akihiko Yanase, Hiroshi Kurata

    Research output: Contribution to journalArticlepeer-review

    5 Citations (Scopus)

    Abstract

    We investigate the effects of free trade agreements (FTAs) on tariffs and welfare in vertical trade. We consider a three-country model, where an FTA is formed between a country exporting a final good and a country exporting an intermediate good. The FTA unambiguously leads to a reduction in the member country's tariff, but may cause the non-member country's tariff level to increase. In the case, where FTA raises the non-member country's tariff level, the FTA increases that country's welfare. In contrast, the FTA may render its member countries better off. This result implies that the formation of an FTA may not always be Pareto-improving.

    Original languageEnglish
    Pages (from-to)569-585
    Number of pages17
    JournalJournal of the Japanese and International Economies
    Volume24
    Issue number4
    DOIs
    Publication statusPublished - 2010 Dec 1

    Keywords

    • Cournot competition
    • Free trade agreements
    • Vertical trade

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics
    • Political Science and International Relations

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