Regionalism and Multilateralism: How Are They Compatible?

— A Symmetrical Two-Sector Trading Block Model
  • Oliver Fratzscher
Chapter
Part of the Contributions to Economics book series (CE)

Abstract

Chapter I studies trade and welfare effects from regional integration. World trade is increasingly conducted between three trading blocks, but world welfare has not declined, as predicted by Krugman. His symmetrical trading block model is extended into a two-sector-model, where trade is beneficial through increased varieties and comparative advantage. Simulations confirm that:
  1. (i)

    regionalism and multilateralism can be compatible and welfare enhancing;

     
  2. (ii)

    sequential integration can monotonously increase world welfare;

     
  3. (iii)

    more dissimilar countries have higher potential benefits from integration;

     
  4. (iv)

    about one third of potential gains from free-trade under average tariffs are already realized in a system of three trading blocks.

     

Keywords

trading block monopolistic competition comparative advantage bilateralism multilateralism regionalism economic integration 
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Copyright information

© Physica-Verlag Heidelberg 1996

Authors and Affiliations

  • Oliver Fratzscher
    • 1
  1. 1.International Monetary FundUSA

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