Some Implications of Trade Liberalization for Choice of Trading Partners

It is well known that nations potentially generate mutual gains from exchange following reductions in tariffs on commodities potentially traded between them. It might appear to follow that successive enlargements of a market by reductions in tariffs for potentially entering members would lead to Pareto improvements both for existing and potential members. The main purpose of this paper is to present variable trading bloc extensions of results analogous to the well known results by Kemp and Wan to show how, while true for particular cases, the statement in the previous sentence is not true in general. Other contributions of the paper are some implications for processes of EC enlargement as well as extensions to mobile factor cases.