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Can bilateralism ease the pains of multilateral trade liberalization?

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  • Cadot, Olivier
  • de Melo, Jaime
  • Olarreaga, Marcelo

Abstract

Using the influence-driven approach to endogenous trade-policy determination, we show how a free-trade agreement (FTA) with rules of origin can work as a device to compensate losers from trade liberalization. The FTA constructed in this paper is characterized by external tariff structures that are negatively correlated across member countries, ensuring efficiency gains and, through reduced average protection, compatibility with the multilateral trading system's requirements. It is also politically viable, and we demonstrate that, in the countries concerned, governments are willing to include its formation in the political agenda in spite of the fact that, in equilibrium, political contributions from producer lobbies decline after the agreement.
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  • Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 2001. "Can bilateralism ease the pains of multilateral trade liberalization?," European Economic Review, Elsevier, vol. 45(1), pages 27-44, January.
    • Handle: RePEc:eee:eecrev:v:45:y:2001:i:1:p:27-44
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    Cited by:

    1. Ibarra-Yunez, Alejandro, 2003. "Spaghetti regionalism or strategic foreign trade: some evidence for Mexico," Journal of Development Economics, Elsevier, vol. 72(2), pages 567-584, December.
    2. Cadot, Olivier*de Melo, Jaime*Olarreaga, Marcelo, 2001. "Can duty-drawbacks have a protectionist bias? Evidence from MERCOSUR," Policy Research Working Paper Series 2523, The World Bank.
    3. Caroline Freund, 2010. "Third‐country Effects of Regional Trade Agreements," The World Economy, Wiley Blackwell, vol. 33(11), pages 1589-1605, November.
    4. Andrey Stoyanov, 2016. "Regional Trade Agreements and Cross-border Lobbying: Empirical Evidence from the Canada–US Free Trade Agreement Negotiations," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 126-149, February.
    5. Debashis Chakraborty, 2007. "IBSAC (INDIA, BRAZIL, SOUTH AFRICA, CHINA): A Potential Developing Country Coalition in WTO Negotiations," Working Papers id:958, eSocialSciences.
    6. Matthew Shearer & Kati Suominen & Antoni Estevadeordal, 2009. "Multilateralising RTAs in the Americas: State of Play and Ways Forward," IDB Publications (Working Papers) 9300, Inter-American Development Bank.
    7. de Melo, Jaime & Cadot, Olivier & Olarreaga, Marcelo, 2000. "The Protectionist Bias of Duty Drawbacks and the New Regionalism," CEPR Discussion Papers 2559, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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