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Extra info for The Origin of Goods: Rules of Origin in Regional Trade Agreements (Centre for Economic Policy Research)
Example text
Having a larger slice of the pie, suppliers may then undertake more relation-specific investments and increase the efficiency of the contractual relationship with the final-good foreign firm. Interestingly, in such a context, a RoO may be welfare improving for all parties. Moreover, this situation may actually occur without having the RoO been binding in equilibrium. Indeed, RoOs may have effects through their impact on ‘potential’ outcomes or, in game-theoretical terms, ‘out of equilibrium’ outcomes.
Moreover, the work shows that it is important to look at the effect on the FTA as a whole, as well as on each member. This is because compensating flows occur in other member countries in response to changes in flows in one member country. In the model used by Ju and Krishna the intermediate good market is the most protected (in the sense that both imports reach a minimum and the price of FTA made input reaches its maximum) when the regime switch occurs. Intermediate goods producers are best off here as this is where their product price, and hence rents, are maximized.
The Size of Trading Blocs: Market Power and World Welfare Effects. Journal of International Economics 40 (3–4): 411–37. , M. Manchin. 2002. Making EU Arrangements Work: The Role of Rules of Origin. Working Document no. 183, Center for European Policy Studies. , J. de Melo, A. Suwa Eisenmann, B. Tumurchudur. 2002. Assessing the Effect of NAFTA’s Rules of Origin. Mimeo. , A. Panagariya. 1993. New Dimensions in Regional Integration, Cambridge University Press. , A. Panagariya. 2001. Free Trade Areas and Rules of Origin: Economics and Politics.