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Cross-border lobbying in preferential trading agreements: implications for external tariffs

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Author Info
Subhayu Bandyopadhyay
Sajal Lahiri
Howard J. Wall

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Abstract

This paper examines the effect of cross-border lobbying on domestic lobbying and on external tariffs in both Customs Union (CU) and Free Trade Area (FTA). We do so by developing a two-stage game which endogenizes the tariff formation function in a political economic model of the directly unproductive rent-seeking activities type. We find that cross-border lobbying unambiguously increases both domestic lobbying and the equilibrium common external tariffs in a CU. The same result also holds for FTA provided tariffs for the member governments are strategic complements. We also develop a specific oligopolistic model of FTA and show that tariffs are indeed strategic complements in such a model.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2009-041.

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Date of creation: 2009
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Handle: RePEc:fip:fedlwp:2009-041

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Keywords: Free trade ; Tariff;

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