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Can Bilateralism Ease the Pains of Trade Liberalisation ?

Author

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  • Olivier CADOT

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Jaime MELO DE
  • OLARREAGA

Abstract

Using the influence-driven approach to endogenous trade-policy determination, we show how a free-trade agreement (FTA) with rules of origin can work as a device to compensate losers from trade liberalization. The FTA constructed in this paper is characterized by external tariff structures that are negatively correlated across member countries, ensuring efficiency gains and, through reduced average protection, compatibility with the multilateral trading system's requirements. It is also politically viable, and we demonstrate that, in the countries concerned, governments are willing to include its formation in the political agenda in spite of the fact that, in equilibrium, political contributions from producer lobbies decline after the agreement.

Suggested Citation

  • Olivier CADOT & Jaime MELO DE & OLARREAGA, 1998. "Can Bilateralism Ease the Pains of Trade Liberalisation ?," Working Papers 199802, CERDI.
    • Handle: RePEc:cdi:wpaper:70
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    Cited by:

    1. Ibarra-Yunez, Alejandro, 2003. "Spaghetti regionalism or strategic foreign trade: some evidence for Mexico," Journal of Development Economics, Elsevier, vol. 72(2), pages 567-584, December.

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