SOME WELFARE EFFECTS OF SEQUENTIAL CUSTOMS UNION FORMATION

This paper deals with the effects on world welfare of sequential custo ms union formation. A computational model of customs union formation i s developed and simulated under a variety of assumptions. These assump tions concern Various characteristics of the world, the pattern of cus toms union formation, and GATT restrictions on common external tariffs . The results show that unrestricted customs union formation is likely to result in successive deterioration of world welfare, despite gains for the member countries collectively. An examination of the current GATT guidelines, however, suggests that if they were vigorously enforc ed, world welfare would rise with customs union formation.