Trade Diversion and Production Sharing

Arbeitspapier

This paper examines the repercussions of cross-border production sharing for the welfare effects of preferential trade liberalization. In a general-equilibrium context, a free trade agreement (FTA), which incorporates production sharing, raises the likelihood of welfare improvement. Thus, two members of a free trade area, who each have comparative disadvantage in the production of a final product relative to a nonmember, may nevertheless enjoy net trade creation if they jointly possess comparative advantage in key components of that product. At a minimum, cross-border production sharing reduces the trade-diverting elements of an FTA. It follows, that rules of origin, viewed as constraints on cross-border fragmentation, augment the negative, tradediverting elements of free trade areas.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Claremont Colleges Working Papers ; No. 2004-01

Classification and Topics

• Classification: Wirtschaft ; Economic Integration ; Trade Policy; International Trade Organizations ; Neoclassical Models of Trade
• Subject: Trade Diversion ; Free Trade Areas ; Fragmentation ; Production Networks ; Aussenhandelspräferenz ; Freihandelszone ; Aussenhandelseffekt ; Internationale Arbeitsteilung

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Arndt, Sven W.
• Event: Veröffentlichung
• (who): Claremont McKenna College, Department of Economics
• (where): Claremont, CA
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/23388
• Last update: 10.03.2025, 11:44 AM CET