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The New Regionalism and the Threat of Protectionism

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  • Hallett Andrew Hughes
  • Braga C. A. Primo

Abstract

Drawing on the game theory concepts, the authors discuss why countries form themselves into trading blocs and what the relations between these blocs are likely to be. They identify three types of regimes: (a) unilateral trade policies - which are noncooperatives; (b) multilateral agreements (such as the GATT) - which are cooperatives; and (c) coalitions (regional integration arrangements or minilateral agreements) - which are mixed (cooperative internally and noncooperatives externally). The authors argue that regional integration arrangements can work better than global rules as precommitment devices for internally cooperative policies because they create a denser network or interlinked policy targets. The losses for a participant ostracized (or disciplined) by his bloc are immediate and tangible. Crucial to the results of analysis is the external policy stance adopted by each bloc after it has formed. External relations will determine whether regional blocs are welfare-improving, consistent with the aims of the GATT, and a vehicle for securing commitments or the regime; or whether theywill become a vehicle for spreading"political economy biases."Should higher or lower external barriers be expected for nonmembers? That depends on how large the benefits or costs, in trade and investment creation (or diversion), would be to members if the mover to free trade within the bloc is not accompanied by any increase in the bloc's external barriers (an"open"bloc). Widening tends to be easier the more open a bloc is, since insiders are less concerned with the erosion of their preferences. In the alternative scenario, lower intra-bloc trade and investment barriers are accompanied by an increase in the external barriers, giving any specific set of potential participants strong incentives to join (a"closed"bloc)."Deepening"by expanding the list of variables covered by the trade agreement also tends to make the bloc more cohesive. In both ca

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 8 (1994)
Issue (Month): 4 (December)
Pages: 388-421

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Handle: RePEc:eee:jjieco:v:8:y:1994:i:4:p:388-421

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Web page: http://www.elsevier.com/locate/inca/622903

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  1. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 166, Princeton, Woodrow Wilson School - Public and International Affairs.
  2. Grossman, G.M. & Helpman, E., 1993. "Trade Wars and Trade Talks," Papers 1-93, Tel Aviv.
  3. Krueger, Anne O, 1992. "Government, Trade, and Economic Integration," American Economic Review, American Economic Association, vol. 82(2), pages 109-14, May.
  4. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. Lawrence Robert Z., 1994. "Regionalism: An Overview," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 365-387, December.
  6. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  7. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-44, Fall.
  8. Finger, J. Michael, 1988. "Economists, institutions, and trade restrictions : a review article," Policy Research Working Paper Series 78, The World Bank.
  9. David M. Gould & Graeme L. Woodbridge, 1993. "Retaliation, liberalization, and trade wars: the political economy of nonstrategic trade policy," Research Paper 9323, Federal Reserve Bank of Dallas.
  10. Lisa L. Martin, 1993. "International And Domestic Institutions In The Emu Process," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 125-144, 07.
  11. Paul Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 5-25.
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Cited by:
  1. Marion Kohler, 1999. "Coalition formation in international monetary policy games," Bank of England working papers 92, Bank of England.
  2. Lewis, Jeffrey D. & Robinson, Sherman & Wang, Zhi, 1995. "Beyond the Uruguay Round: The implications of an Asian free trade area," China Economic Review, Elsevier, vol. 6(1), pages 35-90.
  3. Robinson, Sherman & Lewis, Jeffrey D., 1996. "Partners or predators? : the impact of regional trade liberalization on Indonesia," Policy Research Working Paper Series 1626, The World Bank.
  4. Hoekman, Bernard & Primo Braga, Carlos, 1997. "Protection and Trade in Services: A Survey," CEPR Discussion Papers 1705, C.E.P.R. Discussion Papers.

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