Free Trade Areas and Rules of Origin Economics and Politics

30 Pages Posted: 15 Feb 2006

See all articles by Rupa Duttagupta

Rupa Duttagupta

International Monetary Fund (IMF)

Arvind Panagariya

University of Maryland - Department of Economics; Columbia University

Date Written: November 2003

Abstract

Incorporating intermediate inputs into a small-union general-equilibrium model, this paper first develops the welfare economics of preferential trading under the rules of origin (ROO) and then demonstrates that the ROO could improve the political viability of Free Trade Agreements (FTAs). Two interesting outcomes are derived. First, a welfare reducing FTA that was rejected in the absence of the ROO becomes feasible in the presence of these rules. Second, a welfare improving FTA that was rejected in the absence of the ROO is endorsed in their presence, but upon endorsement it becomes welfare inferior relative to the status quo.

Keywords: Rules of Origin FTA Welfare Political economy

JEL Classification: F10

Suggested Citation

Duttagupta, Rupa and Panagariya, Arvind, Free Trade Areas and Rules of Origin Economics and Politics (November 2003). IMF Working Paper No. 03/229, Available at SSRN: https://ssrn.com/abstract=880927

Rupa Duttagupta (Contact Author)

International Monetary Fund (IMF) ( email )

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Arvind Panagariya

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Columbia University ( email )

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