TY  - JOUR
AU  - Frankel, Jeffrey A
AU  - Stein, Ernesto
AU  - Wei, Shang-Jin
TI  - Continental Trading Blocs: Are They Natural, or Super-Natural?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4588
PY  - 1993
Y2  - December 1993
DO  - 10.3386/w4588
UR  - http://www.nber.org/papers/w4588
L1  - http://www.nber.org/papers/w4588.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Harvard Kennedy School
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu

Ernesto Stein
1300 New York Avenue
Washington, DC, USA 20577
E-Mail: ernestos@iadb.org

Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
M1  - published as Jeffrey A. Frankel, Ernesto Stein, Shang-Jin Wei. "Continental Trading Blocs: Are They Natural or Supernatural?," in Jeffrey A. Frankel, editor, "The Regionalization of the World Economy" University of Chicago Press (1998)

AB  - Using the gravity model, we find evidence of three continental trading blocs: the Americas, Europe and Pacific Asia.  Intra-regional trade exceeds what can be explained by the proximity of a pair of countries, their sizes and GNP/capitas, and whether they share a common border or language.  We then turn from the econometrics to the economic welfare implications.  Krugman has supplied an argument against a three-bloc world, assuming no transport costs, and another argument in favor, assuming prohibitively high transportation costs between continents.  We complete the model for the realistic case where intercontinental transport costs are neither prohibitive nor zero.  If transport costs are low, continental Free Trade Areas can reduce welfare.  We call such blocs super-natural.  Partial liberalization is better than full liberalization within regional Preferential Trading Arrangements, despite the GATT's Article 24.  The super-natural zone occurs when the regionalization of trade policy exceeds what is justified by natural factors.  Estimates suggest that trading blocs like the current EC are super-natural.
ER  -