In this article we analyze the economic effects associated with preferential Rules of Origin (RoO) in a free trade area (FTA). By presenting a stylized three-country model of trade under oligopoly, we show that there exists a maximum limit of RoO below which forming an FTA is welfare-improving....

This paper examines differences in welfare implications between a free trade area (FTA) and a customs union (CU) for member countries differing in their market sizes. In a stylized three-country model of trade under oligopoly, we take into account the conditions that FTA members set external...