Regionalism, Trade and Economic Development in the Asia-Pacific Region
Show Less

Regionalism, Trade and Economic Development in the Asia-Pacific Region

Edited by M. A.B. Siddique

This book is based on the premise that Regional Trade Agreements (RTAs) in the Asia-Pacific significantly impact on the material progress of the peoples of this region. These impacts – in terms of the benefits and costs associated with RTAs – will vary greatly from country to country. The internationally acclaimed contributors examine the theoretical perspective of RTAs in relation to exchange rates, the role and goals of the WTO and agriculture.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 3: Preferential Trade Agreements and Exchange Rate Regimes

Larry A. Sjaastad


Larry A. Sjaastad INTRODUCTION In the written version of a lecture that Robert Mundell (Mundell 2000) delivered at the Universidad del CEMA in Buenos Aires, Argentina, on 17 April 2000, he declares in Part 6 of his lecture: What is the relation between free trade areas or customs unions and the exchange rate system? Put somewhat differently, is it possible to achieve the full benefits of a free trade area and at the same time have exchange rates that fluctuate? I will make the argument that free trade areas and currency areas (zones of fixed exchange rates) reinforce one another. [He goes on to say that] uncertainty over exchange rates affects trade directly because it affects profit margins and indirectly because it misdirects investment. Small changes in exchange rates can completely wipe out expected profits.1 In this chapter I intend to make points somewhat similar to those of Mundell, but in a rather different context.2 My main point is that free (or preferential) trading arrangements are best undertaken among economies that constitute an optimum currency area. Mundell’s analysis in his seminal article on optimum currency areas in 1961 was in the context of the Bretton Woods international monetary system, in which exchange rates among major (and many minor) currencies were fixed. His conclusion was that an optimum currency area is one in which there was free mobility of factors. Accordingly, the USA and Australia are optimum currency areas, but the euro zone may...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.