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Necessarily Welfare-enhancing Customs Unions with Industrialization Constraints: The Cooper-Massell-Johnson-Bhagwati Conjecture

Bhagwati, Jagdish N.; Krishna, Pravin

This paper demonstrates that welfare-improving Customs Unions can be guaranteed even if we are constrained by specific non-economic government objectives, thus proving the Cooper-Massell-Johnson-Bhagwati conjecture. We consider a 'production' objective here, where a member country requires the output of a particular sector (e.g. a target level of industrialization) to be maintained at the pre-union level, and show that welfare-improving Customs Unions can still be achieved. It is straightforward to show that this result can be extended to other non-economic objectives as well.

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Japan and the World Economy

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Economics
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January 28, 2013