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The Regionalization of the World Economy$
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Jeffrey A. Frankel

Print publication date: 1997

Print ISBN-13: 9780226259956

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226260228.001.0001

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Continental Trading Blocs: Are They Natural or Supernatural?

Continental Trading Blocs: Are They Natural or Supernatural?

(p.91) 4 Continental Trading Blocs: Are They Natural or Supernatural?
The Regionalization of the World Economy

Jeffrey A. Frankel

Ernesto Stein

Shang-jin Wei

University of Chicago Press

The world trading system seems to be moving, not just to a system of regional free trade areas (FTAs) but to a system of large continental groupings. In Europe, the European Union (formerly the European Community) removed internal barriers in 1992 and admitted three new members in 1994, bringing the total to fifteen. In December 1994, the leaders of Western Hemisphere countries met in Miami and agreed to form an FTA for the Americas. This paper investigates three questions. According to bilateral trade data, is the world indeed breaking up into a small number of continental trade blocs? In theory, is a small number of continental blocs good or bad for world economic welfare? For actual parameter values, is the current pattern of trade regionalization welfare-promoting or welfare-reducing? The welfare implication of continental blocs depends on the values of some crucial parameters. This chapter focuses on the real-world counterparts of these key parameters, particularly the magnitude of transport costs.

Keywords:   continental trade blocs, free trade areas, economic welfare, bilateral trade, transport costs, trade regionalization

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