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Why A Free Trade Area? The Tariff Also Rises

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  • MARTIN RICHARDSON

Abstract

This paper considers the choice between a customs union (wherein partners share a common external tariff) and a free trade area (wherein each partner chooses its own tariff against non-members). Following the result that a customs union dominates a free trade area, with coordination of domestic tax policies, we show that a free trade area may nevertheless be chosen if tariffs are determined endogenously through industry lobbying. This is so even when the free trade area equates producer prices within its borders and induces tariff revenue competition and whether or not there is domestic free-riding in lobbying. Copyright 1994 Blackwell Publishers Ltd..

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0343.1994.tb00085.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Economics & Politics.

Volume (Year): 6 (1994)
Issue (Month): 1 (03)
Pages: 79-96

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Handle: RePEc:bla:ecopol:v:6:y:1994:i:1:p:79-96

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985

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Cited by:
  1. Schiff, Maurice, 2001. "Will the Real “Natural Trading Partner” Please Stand Up?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 245-261.
  2. P. Magee, Stephen & Lee, Hak-Loh, 2001. "Endogenous tariff creation and tariff diversion in a customs union," European Economic Review, Elsevier, vol. 45(3), pages 495-518, March.
  3. Facchini, Giovanni & Silva, Peri & Willmann, Gerald, 2013. "The customs union issue: Why do we observe so few of them?," Journal of International Economics, Elsevier, vol. 90(1), pages 136-147.
  4. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August.
  5. Elie Appelbaum & Mark Melatos, 2012. "Camouflaged Trade Agreements," Working Papers 2012_2, York University, Department of Economics.
  6. Panagariya, A., 1997. "Preferential trading and the myth of natural trading partners," Japan and the World Economy, Elsevier, vol. 9(4), pages 471-489, December.
  7. Rafael Lima & Humberto Moreira & Thierry Verdier, 2008. "Lobbying and Information Transmission in Customs Unions," Working Papers 09_01, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.

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