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Tariff Cooperation in Free Trade Areas

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  • Mai, Joseph
  • Stoyanov, Andrey

Abstract

This paper develops a model of endogenous trade policy formation to study the impact of free trade agreements (FTA) on external trade policies of member states when they internalize the intra-bloc welfare effects. This model is empirically tested using global trade data covering 170 countries and 177 FTAs established between 1988 and 2011. We find empirical evidence of tariff cooperation between members of FTAs. Using three different measures of political relations (the affinity scores from the UN General Assembly Voting Data, dyad alliances data, and bilateral events and interactions data), we show that members with good political relations cooperate more on external tariff policy after formation of FTAs. On average, an increase in the market share of FTA partners' firms by one standard deviation is associated with about 3 percentage points increase in external tariffs.

Suggested Citation

  • Mai, Joseph & Stoyanov, Andrey, 2018. "Tariff Cooperation in Free Trade Areas," MPRA Paper 84398, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84398
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    File URL: https://mpra.ub.uni-muenchen.de/84398/1/MPRA_paper_84398.pdf
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    References listed on IDEAS

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    Cited by:

    1. Lorenzo Rotunno & Pierre-Louis Vézina, 2012. "Chinese Networks and Tariff Evasion," The World Economy, Wiley Blackwell, vol. 35(12), pages 1772-1794, December.
    2. Elie Appelbaum & Mark Melatos, 2018. "Are Customs Unions Really So Scarce?," The Economic Record, The Economic Society of Australia, vol. 94(307), pages 391-404, December.

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    More about this item

    Keywords

    Free trade agreements; cooperative trade policies; import tariffs;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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