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A Political Economy Analysis of Preferential Trading and Multilateralism

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Author Info

  • Pravin Krishna

    (Brown University)

Abstract

This paper examines the impact of Free Trade Areas (FTAs) on the incentives for multilateral liberalization and challenges the contention that Free Trade Areas are superior to GATT style (multilateral) trade liberalization as a way of getting to multilateral free trade for all. Incorporating political economy factors in a model of trade with imperfect competition in segmented markets, this paper reaches two conclusions: First, that preferential arrangements which divert trade away from the rest of the world are more likely to be supported politically, and second, that such preferential arrangements will reduce member country incentives for multilateral liberalization. It is also argued that in some cases this reduction in incentives could be critical: Multilateral liberalization that is initially feasible could be rendered infeasible by preferential arrangements. The larger the trade diversion resulting from the preferential arrangement, the more likely this will be the case.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume22/V22N4P477_483.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 22 (1996)
Issue (Month): 4 (Fall)
Pages: 477-483

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Handle: RePEc:eej:eeconj:v:22:y:1996:i:4:p:477-483

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Related research

Keywords: Free Trade; Trade;

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References

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  1. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
  2. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
  3. Pravin Krishna, . "Regionalism and Multilaterialism: A Political Economy Approach," Working Papers 96-5, Brown University, Department of Economics.
  4. Panagariya, Arvind & Findlay, Ronald & DEC, 1994. "A political - economy analysis of free trade areas and customs unions," Policy Research Working Paper Series 1261, The World Bank.
  5. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
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Cited by:
  1. Kimakova, Alena & Rajabiun, Reza, 1999. "An Applied General Equilibrium Analysis of EU Integration for Hungary and Slovakia," Transition Economics Series 9, Institute for Advanced Studies.

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