Do South‐South preferential trade agreements undermine the prospects for multilateral free trade?

Do South‐South preferential trade agreements undermine the prospects for multilateral free trade?

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Article ID: iaor2017741
Volume: 50
Issue: 1
Start Page Number: 111
End Page Number: 161
Publication Date: Feb 2017
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors: ,
Keywords: government, developing countries
Abstract:

Due to trade diversion, there have been concerns expressed over the proliferation of preferential trade agreements (PTAs) that include South countries. In this paper, we compare welfare across different geographic configurations of bilateral free trade agreements (FTAs) and customs unions (CUs) and examine their implications for the stability of multilateral free trade. While North–North PTAs do tend to yield higher global welfare than South–South PTAs, a single South–South FTA may make free trade more sustainable than any other single agreement. With pre‐existing North–North agreements and a large enough cost asymmetry between regions, an additional South member or a new South–South agreement always makes free trade harder to sustain.

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