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Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?

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  • Cadot, Olivier
  • de Melo, Jaime
  • Olarreaga, Marcelo

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 even though, in equilibrium, political contributions from producer lobbies decline after the agreement.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1878.

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Date of creation: May 1998
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Handle: RePEc:cpr:ceprdp:1878

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Related research

Keywords: free-trade areas; Political Economy;

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References

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  1. Anne O. Krueger, 1993. "Free Trade Agreements as Protectionist Devices: Rules of Origin," NBER Working Papers 4352, National Bureau of Economic Research, Inc.
  2. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
  3. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  4. Arye L. Hillman & Ngo Van Long & Peter Moser, 1995. "Modelling Reciprocal Trade Liberalization: The Political-economy and National-welfare Perspectives," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(III), pages 503-515, September.
  5. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February.
  6. Winters, L. Alan, 1996. "Regionalism versus multilateralism," Policy Research Working Paper Series 1687, The World Bank.
  7. de Melo, Jaime & Panagariya, Arvind & Rodrik, Dani, 1993. "The new regionalism : a country perspective," Policy Research Working Paper Series 1094, The World Bank.
  8. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
  9. Anne O. Krueger, 1995. "Free Trade Agreements versus Customs Unions," NBER Working Papers 5084, National Bureau of Economic Research, Inc.
  10. 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.
  11. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  12. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  13. repec:fth:geneec:96.07 is not listed on IDEAS
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Citations

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Cited by:
  1. Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 2000. "The Protectionist Bias of Duty Drawbacks and the New Regionalism," CEPR Discussion Papers 2559, C.E.P.R. Discussion Papers.
  2. Debashis Chakraborty, 2007. "IBSAC (INDIA, BRAZIL, SOUTH AFRICA, CHINA): A Potential Developing Country Coalition in WTO Negotiations," Working Papers id:958, eSocialSciences.
  3. Matthew Shearer & Kati Suominen & Antoni Estevadeordal, 2009. "Multilateralising RTAs in the Americas: State of Play and Ways Forward," IDB Publications 9300, Inter-American Development Bank.
  4. Alejandro Ibarra-Yunez, 2003. "Spaghetti Regionalism or Strategic Foreign Trade: Some Evidence for Mexico," NBER Working Papers 9692, National Bureau of Economic Research, Inc.
  5. Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 2001. "Can duty-drawbacks have a protectionist bias? Evidence from MERCOSUR," Policy Research Working Paper Series 2523, The World Bank.

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