An Alternative Welfare Decomposition for Customs Unions.

The authors present a means of evaluating the effects of customs-union formation by a decomposition of the overall welfare effect into two components: the consequences of induced changes in domestic prices; and the effects on income of adjustments in tariff rates and endogenous changes in the pattern and volume of trade. A virtue of the proposed decomposition is that it is path independent, providing unambiguous results for analyses of both marginal and discrete changes in tariff rates. This property means that the decomposition may be numerically implemented to provide better insight into the welfare effects of economic integration.