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Free Trade Areas with Politically Active Oligopolies

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  • Emanuel Ornelas

    (University of Wisconsin)

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    Abstract

    I evaluate in this paper the effects of Free-Trade Areas (FTAs) on the incentives for further multilateral liberalization (ML) using a model that emphasizes the role of oligopolistic industries in creating both reasons for strategic trade policies and political pressures aimed to affect trade policy decisions. In this context, I find that FTAs are in general unable to undermine an otherwise feasible ML process. The primary reason regards an identified "tariff complementarity effect," which indicates that a FTA induces its members to reduce their remaining tariffs. This effect reflects mainly the reduction of the strategic reasons from protection under a FTA, and ensures a move toward "trade creation." The introduction of political pressures may revert that result. Nevertheless, this would happen only in the presence of coordination failures between the national oligopolies, and even in that case such undermining would be unlikely to occur.

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1457.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:1457

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    1. John McLaren, 2002. "A Theory Of Insidious Regionalism," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 571-608, May.
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    17. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
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    Cited by:
    1. Sabates, Robert & Gould, Brian W., 2001. "Characteristics of Food Expenditures in Argentina: Implications for the U.S. Dairy Industry," Discussion Papers 37657, University of Wisconsin-Madison, Babcock Institute for International Dairy Research and Development.

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