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Title:Trade Diversion and Production Sharing PDF Logo
Authors:Arndt, Sven W.
Issue Date:2004
Series/Report no.:Working paper series / Claremont McKenna College 04,01
Abstract: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.
Subjects:Trade Diversion
Free Trade Areas
Fragmentation
Production Networks
JEL:F15
F13
F11
Document Type:Working Paper
Appears in Collections:Claremont Colleges Working Papers in Economics, Department of Economics, Claremont McKenna College

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