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Multilateralism and the endogenous formation of PTAs

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Author Info
Caroline L. Freund

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Abstract

This paper examines the interaction between preferential trade agreements (PTAs) and multilateral tariff reduction in a model of imperfect competition. A growing literature finds that the formation of PTAs alters the incentives for and the sustainability of multilateral tariff reduction. We show that the causation is not one-sided -- multilateral tariff reduction also affects the formation of PTAs. Specifically, tariff reduction enhances the incentives to form a PTA and increases the likelihood that it is self-enforcing. Thus, each round of multilateral tariff reduction should lead to a new wave of PTAs. This may help to explain the current trend towards regionalism.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 614.

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Date of creation: 1998
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Handle: RePEc:fip:fedgif:614

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Related research
Keywords: International trade ; Tariff;

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. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  2. Bhagwati, J. & Panagariya, A., 1996. "Preferential Trading Areas and Multilateralism: Strangers, Friends or Foes?," Discussion Papers 1996_09, Columbia University, Department of Economics.
  3. 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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  4. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December. [Downloadable!] (restricted)
  5. 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)
  6. Bagwell, Kyle & Staiger, Robert, 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," CEPR Discussion Papers 962, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. 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. [Downloadable!] (restricted)
  8. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-90, September. [Downloadable!] (restricted)
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  9. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August. [Downloadable!] (restricted)
  10. 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)
  11. 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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  12. 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. [Downloadable!] (restricted)
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  13. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May. [Downloadable!] (restricted)
  14. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, vol. 80(4), pages 779-95, September. [Downloadable!] (restricted)
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  16. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February. [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. Jaime MELO DE, 2005. "Regionalism and Developing Countries: A Primer," Working Papers 200510, CERDI. [Downloadable!]
  2. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Towards Non-Members?," CEP Discussion Papers dp0868, Centre for Economic Performance, LSE. [Downloadable!]
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