| Chapter 1 examines the consequences of the existence of regional trade agreements (RTAs) in the GATT. I modify Bagwell and Staiger's (1999) dynamic model for countries to have a common discount rate, and consider two types of GATT regimes: a pure GATT regime without an RTA such as a free trade agreement (FTA) or a customs union (CU), and a modified GATT regime with one of them. I show that, first, for a range of sufficiently high discount rate, free trade can be supported under the pure GATT regime but it may be not achievable under the modified regimes. Second, I show that a country's ranking of regimes depends on whether it belongs to an RTA or not. When comparing the pure and FTA-modified GATT regimes, an FTA member prefers the pure regime while a non-member prefers the FTA-modified regime. However, when comparing the pure and CU-modified GATT regimes, a CU member prefers the CU-modified regime while a non-member prefers the pure regime. These results imply that the current GATT regime, which allows both FTAs and CUs, may restrict free trade and thus fails to achieve the highest global welfare.; Chapter 2 re-examines the above results, in the presence of foreign ownership. I show that, when the size of the foreign ownership is significant, the results from the CU-modified GATT regime become qualitatively similar to those of FTA-modified regime. These results imply that the current GATT regime, which allows both FTAs and CUs, may achieve free trade and thus the highest global welfare.; Chapter 3 examines the stability of industrial structure resulting from production shifting-in effect of an RTA to a later increase in external trade costs between the RTA and its non-RTA countries. I extend Krugman's (1991) economic geography model to include multiple nations. I show that, although the production shifting-in effect is in general true in an economic geography model, the industrial structure resulting from the effect may become unstable when there occurs a later increase in the external trade costs. This result implies that non-higher external trade barriers after a formation of an RTA are needed. |
