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Deepening of Regional Integration and Multilateral Trade Agreements

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Author Info
Bond, Eric W
Syropoulos, Costas
Winters, L Alan

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Abstract

We consider a simple three-country, multi-commodity trade model in which two custom union members that have successfully coordinated their external tariff policies are in the process of deepening the integration of their internal markets through the removal of tariffs on intra-union trade. Union and non-union countries cannot sign binding trade agreements. Owing to repeated interactions, however, they can sustain cooperative outcomes with the use of history-dependent strategies. The goal of this paper is to examine how the deepening of integration affects the set of incentive-compatible tariff agreements these parties can support. We derive conditions under which Kemp-Wan (1976) adjustments in the external tariffs of union members are sustainable and we use these adjustments as a frame of reference to evaluate the actual tariff-setting incentives of trading partners. Our analysis reveals that the deepening of integration may enlarge the set of sustainable tariff agreements with the outside country, and that this possibility crucially depends on the degree of substitutability in consumption. We also investigate the effects of integration on sustainable levels of welfare and extend our analysis to consider the effects of political economy factors.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1317.

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Date of creation: Jan 1996
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Handle: RePEc:cpr:ceprdp:1317

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Related research
Keywords: Europe '1992' Kemp-Wan Tariff Adjustments Regional Integration Tariff Negotiations

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February. [Downloadable!] (restricted)
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  2. Srinivasan, T. N., 1997. "The common external tariff of a customs union: Alternative approaches," Japan and the World Economy, Elsevier, vol. 9(4), pages 447-465, December. [Downloadable!] (restricted)
  3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  4. Bond, E. & Syropoulos, C., 1993. "Trading Blocs and the Sustainability of Inter-Regional Cooperation," Discussion Papers 93-17, Department of Economics, University of Birmingham.
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  5. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May. [Downloadable!] (restricted)
  6. Bond, Eric W. & Syropoulos, Constantinos & Winters, L. Alan, 2001. "Deepening of regional integration and multilateral trade agreements," Journal of International Economics, Elsevier, vol. 53(2), pages 335-361, April. [Downloadable!] (restricted)
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  7. Kyle Bagwell & Robert Staiger, 1994. "Multilateral Tariff Cooperation During the Formation of Regional Free Trade Areas," International Trade 9410001, EconWPA. [Downloadable!]
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  8. Lawrence H. Summers, 1991. "Regionalism and the world trading system," Proceedings, Federal Reserve Bank of Kansas City, pages 295-301.
  9. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier. [Downloadable!] (restricted)
  10. Carlo Perroni & John Whalley, 1994. "The New Regionalism: Trade Liberalization or Insurance?," NBER Working Papers 4626, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. John Kennan & Raymond Riezman, 1990. "Optimal Tariff Equilibria with Customs Unions," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 70-83, February. [Downloadable!] (restricted)
  12. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Syropoulos, Constantinos, 1999. "Customs Unions and Comparative Advantage," Oxford Economic Papers, Oxford University Press, vol. 51(2), pages 239-66, April.
  15. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
  17. Richardson, Martin, 1995. "On the Interpretation of the Kemp/Wan Theorem," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 696-703, October. [Downloadable!] (restricted)
  18. Winters, L. Alan, 1996. "Regionalism versus multilateralism," Policy Research Working Paper Series 1687, The World Bank. [Downloadable!]
  19. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Itai Agur, 2007. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Economics Working Papers ECO2007/17, European University Institute. [Downloadable!]
  2. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA. [Downloadable!]
  3. Giorgia Albertin, 2008. "Regionalism or Multilateralism? A Political Economy Choice," IMF Working Papers 08/65, International Monetary Fund. [Downloadable!]
  4. Subhayu Bandyopadhyay & Ryo Takashima, 2005. "Trade Policy and Illegal Immigration," IZA Discussion Papers 1568, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Yu-Ter Wang & Bih-Jane Liu & Pan-Long Tsai, 2004. "Trade Policy and Economic Integration in a Cournot Duopoly Model," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(3), pages 239-251. [Downloadable!]
  6. Eric W. Bond & Stephen Ching & Edwin Lai, 2002. "Accession Rule and Trade Agreements: The Case of the WTO," Trade Working Papers 163, East Asian Bureau of Economic Research. [Downloadable!]
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  7. Constantinos Syropoulos, 2002. "On Tariff Preferences And Delegation Decisions In Customs Unions: A Heckscher--Ohlin Approach," Economic Journal, Royal Economic Society, vol. 112(481), pages 625-648, July. [Downloadable!] (restricted)
  8. Taiji Furusawa & Hideo Konishi, 2002. "Free Trade Networks," Boston College Working Papers in Economics 548, Boston College Department of Economics, revised 08 Sep 2003. [Downloadable!]
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  9. Kyle Bagwell & Robert W. Staiger, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March. [Downloadable!] (restricted)
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  10. Ben Zissimos, 2006. "The GATT and Gradualism," Working Papers 0619, Department of Economics, Vanderbilt University. [Downloadable!]
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  11. Yoshitomo Ogawa, 2007. "The structure of optimal tariff rates in a large country with market power," Economic Theory, Springer, vol. 33(2), pages 271-283, November. [Downloadable!] (restricted)
  12. Caroline L. Freund, 1998. "Multilateralism and the endogenous formation of PTAs," International Finance Discussion Papers 614, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Bond, Eric W & Syropoulos, Costas & Winters, L Alan, 2000. "Deepening of Regional Integration and Multilateral Trade Agreements," CEPR Discussion Papers 2480, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  14. Eric W. Bond & Stephen Ching & Edwin Lai, 2002. "A Game-Theoretic Analysis of China's WTO Accession," Trade Working Papers 164, East Asian Bureau of Economic Research. [Downloadable!]
    Other versions:
  15. Jung Hur, 2001. "Welfare Implications of Regionalism in the GATT," Departmental Working Papers wp0111, National University of Singapore, Department of Economics. [Downloadable!]
  16. Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Nuno Limão, 2002. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Bloc for Multilateral Liberalization?," International Trade 0206001, EconWPA. [Downloadable!]
    Other versions:
  18. Rodney D. Ludema, 1998. "On the Value of Preferential Trade Agreements in Multilateral Negotiations," International Trade 9802003, EconWPA. [Downloadable!]
  19. Ben Zissimos, 2007. "Why are Trade Agreements Regional?," Working Papers 2007.67, Fondazione Eni Enrico Mattei. [Downloadable!]
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