By Olivier Cadot, Antoni Estavadeoral, Akiko Suwa Eisenmann, Thierry Verdier
This publication seems at ideas of beginning in preferential buying and selling agreements and their transforming into significance in exchange negotiations. The book's message is that ideas of foundation can act as strong obstacles to exchange and feature been intentionally used as such.
Read Online or Download The Origin of Goods: Rules of Origin in Regional Trade Agreements (Centre for Economic Policy Research) PDF
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Extra resources for The Origin of Goods: Rules of Origin in Regional Trade Agreements (Centre for Economic Policy Research)
Example text
Falvey and Reed (2000) argue that RoO have a role complementary to that of tariffs as RoO affect input demand. Thus, a large country could affect the terms of trade in both final and intermediate goods by using RoO as well as tariffs on the final good. Ju and Krishna (1998) and (2002) show that allowing the price of FTA inputs to be endogenously determined results in a number of interesting insights. The discussion that follows can be found in more detail in their work. The driving force behind their results is a non-monotonicity that arises naturally in such settings and that seems to have been previously overlooked.
Let Sf such that v00 (Sf ) ¼ vi0 (1 À Sf ) be the level of outsourcing minimizing the total fixed costs of production co-ordination. To make things precise, we assume that Sm ! 4 The level of outsourcing minimizing the variable costs of production is larger than that minimizing the fixed costs of co-ordination. This relationship would clearly arise when, at the margin, co-ordination costs of outsourcing are relatively more important than co-ordination costs of ‘in-house’ production. 5 Firms sell the final good on a market characterized by a linear inverse demand function p(q) ¼ 1 À q with q ¼ qa þ qb total output and qh the final output of firm h [ fa, bg.
It is easiest to explain these three results with a particular example based on Krishna and Krueger (1995). Suppose that the FTA is made up of countries A and B. Both countries import the final good in question from the rest of the world and take the à world price of P as given. B also produces it domestically so that the domestic price in B equals the domestic unit cost of production, which equals the world price as we assume that the tariff in B is zero. Country A has a positive tariff on the good, and for simplicity assume A has no domestic production.