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The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union

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Author Info
Karacaovali, Baybars
Limao, Nuno

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Abstract

There has been an explosion in the number of preferential trade agreements in the past decade. Preferential trade agreements are characterized by liberalization with respect to only a few partners and thus they can potentially clash with and retard multilateral trade liberalization. Despite this important concern with preferential trade agreements, there is almost no systematic evidence on whether they actually affect multilateral trade liberalization. The authors model the effect of preferential trade agreements on multilateral trade liberalization and show that preferential trade agreements slow down multilateral trade liberalization unless they havea common external tariff and allow for internal transfers. Next, they use detailed data on product-level tariffs negotiated by the European Union in the past two multilateral trade rounds to structurally estimate their model. The authors confirm the main prediction-the European Union's preferential trade agreements have clashed with its multilateral trade liberalization--and find that the effect is quantitatively significant. Moreover, they also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of multilateral liberalization in the European Union.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3493.

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Date of creation: 01 Jan 2005
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Handle: RePEc:wbk:wbrwps:3493

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Keywords: Economic Theory&Research; Rules of Origin; Export Competitiveness; Environmental Economics&Policies; Trade Policy; Environmental Economics&Policies; Economic Theory&Research; Trade and Regional Integration; Trade Policy; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT;

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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.:
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  2. Cadot, O. & De Melo, J. & Olarreaga, M., 1996. "Regional Integration and Lobbying for Tariffs Against Non-Members," University of Geneva Economics Working Papers 96.07, University of Geneva, Department of Political Economy.
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  3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  4. Pinelopi Koujianou Goldberg & Giovanni Maggi, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December. [Downloadable!] (restricted)
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  5. Hiau Looi Kee & Nicita, Alessandro & Olarreaga, Marcelo, 2004. "Import demand elasticities and trade distortions," Policy Research Working Paper Series 3452, The World Bank. [Downloadable!]
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  6. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August. [Downloadable!] (restricted)
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  7. Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, vol. 92(4), pages 889-904, September. [Downloadable!]
  8. Nuno Limao, 2007. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," Review of Economic Studies, Blackwell Publishing, vol. 74(3), pages 821-855, 07. [Downloadable!] (restricted)
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  9. Finger, J. Michael & Reincke, Ulrich & Castro, Adriana, 1999. "Market access bargaining in the Uruguay Round - Rigid or relaxed reciprocity?," Policy Research Working Paper Series 2258, The World Bank. [Downloadable!]
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  12. Nuno Limão & Marcelo Olarreaga, 2006. "Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization," World Bank Economic Review, Oxford University Press, vol. 20(2), pages 217-240.
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  13. Kyle Bagwell & Robert W. Staiger, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March. [Downloadable!] (restricted)
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  14. Kyle Bagwell & Robert W. Staiger, 2006. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," NBER Working Papers 12727, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Riedel, James, 1977. "Tariff concessions in the Kennedy Round and the structure of protection in West Germany : An econometric assessment," Journal of International Economics, Elsevier, vol. 7(2), pages 133-143, May. [Downloadable!] (restricted)
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  17. 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)
  18. Finger, J M, 1976. "Effects of the Kennedy Round Tariff Concessions on the Exports of Developing Countries," Economic Journal, Royal Economic Society, vol. 86(341), pages 87-95, March. [Downloadable!] (restricted)
  19. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September. [Downloadable!] (restricted)
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  20. Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Constantopoulos, Maria, 1974. "Labour protection in Western Europe," European Economic Review, Elsevier, vol. 5(4), pages 313-328, December. [Downloadable!] (restricted)
  22. 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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  23. Faezeh Foroutan, 1998. "Does Membership in a Regional Preferential Trade Arrangement Make a Country More or Less Protectionist?," The World Economy, Blackwell Publishing, vol. 21(3), pages 305-335, 05. [Downloadable!] (restricted)
  24. Karacaovali, Baybars & Limão, Nuno, 2008. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," Journal of International Economics, Elsevier, vol. 74(2), pages 299-327, March. [Downloadable!] (restricted)
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(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. Nuno Lim, 2006. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States," American Economic Review, American Economic Association, vol. 96(3), pages 896-914, June. [Downloadable!]
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