Preferential Trade Agreements between Asymmetric Countries

This paper examines differences in welfare implications between a free trade area (FTA) and a customs union (CU) for member countries differing in their market sizes. In a stylized three-country model of trade under oligopoly, we take into account the conditions that FTA members set external tariffs to induce their exporting firms to comply with Rules of Origin (ROO) within the trade bloc.

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