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Rules of origin and consumer‐hurting free trade agreements*
- Source :
- The World Economy. 44:2303-2318
- Publication Year :
- 2021
- Publisher :
- Wiley, 2021.
-
Abstract
- This study examines how the rules of origin (RoO) of a free trade agreement (FTA) affect firms' pricing strategies. The value‐added criterion (VAC) of the RoO requires firms to add more than a certain level of value within an FTA when firms use inputs originating from outside the FTA. The VAC may work as a price floor, and the resulting increases in prices can benefit all firms if it induces an offshoring firm to manipulate its output price. Meanwhile, a consumer‐hurting FTA formation is possible, even if all firms make tariff‐free exports. Furthermore, such an FTA formation may worsen total welfare.
Details
- ISSN :
- 14679701 and 03785920
- Volume :
- 44
- Database :
- OpenAIRE
- Journal :
- The World Economy
- Accession number :
- edsair.doi...........8792da8f00f036c6eee8a8b6cd2ddbda
- Full Text :
- https://doi.org/10.1111/twec.13097