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The New Regionalism and the Threat of Protectionism

  • Hallett Andrew Hughes
  • Braga C. A. Primo

Drawing on the game theory concepts, the authors discuss why countries form themselves into trading blocs and what the relations between these blocs are likely to be. They identify three types of regimes: (a) unilateral trade policies - which are noncooperatives; (b) multilateral agreements (such as the GATT) - which are cooperatives; and (c) coalitions (regional integration arrangements or minilateral agreements) - which are mixed (cooperative internally and noncooperatives externally). The authors argue that regional integration arrangements can work better than global rules as precommitment devices for internally cooperative policies because they create a denser network or interlinked policy targets. The losses for a participant ostracized (or disciplined) by his bloc are immediate and tangible. Crucial to the results of analysis is the external policy stance adopted by each bloc after it has formed. External relations will determine whether regional blocs are welfare-improving, consistent with the aims of the GATT, and a vehicle for securing commitments or the regime; or whether theywill become a vehicle for spreading"political economy biases."Should higher or lower external barriers be expected for nonmembers? That depends on how large the benefits or costs, in trade and investment creation (or diversion), would be to members if the mover to free trade within the bloc is not accompanied by any increase in the bloc's external barriers (an"open"bloc). Widening tends to be easier the more open a bloc is, since insiders are less concerned with the erosion of their preferences. In the alternative scenario, lower intra-bloc trade and investment barriers are accompanied by an increase in the external barriers, giving any specific set of potential participants strong incentives to join (a"closed"bloc)."Deepening"by expanding the list of variables covered by the trade agreement also tends to make the bloc more cohesive. In both ca

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 8 (1994)
Issue (Month): 4 (December)
Pages: 388-421

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Handle: RePEc:eee:jjieco:v:8:y:1994:i:4:p:388-421
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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  1. Lisa L. Martin, 1993. "International And Domestic Institutions In The Emu Process," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 125-144, 07.
  2. Grossman, G.M. & Helpman, E., 1992. "Trade Wars and Trade Talks," Papers 163, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Lawrence Robert Z., 1994. "Regionalism: An Overview," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 365-387, December.
  4. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  5. David M. Gould & Graeme L. Woodbridge, 1993. "Retaliation, liberalization, and trade wars: the political economy of nonstrategic trade policy," Research Paper 9323, Federal Reserve Bank of Dallas.
  6. Paul Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 5-25.
  7. Grossman, Gene & Helpman, Elhanan, 1994. "The Politics of Free Trade Agreements," CEPR Discussion Papers 908, C.E.P.R. Discussion Papers.
  8. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  9. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-44, Fall.
  10. Krueger, Anne O, 1992. "Government, Trade, and Economic Integration," American Economic Review, American Economic Association, vol. 82(2), pages 109-14, May.
  11. Lorenz, Detlef, 1992. "Economic Geography and the Political Economy of Regionalization: The Example of Western Europe," American Economic Review, American Economic Association, vol. 82(2), pages 84-87, May.
  12. Finger, J. Michael, 1988. "Economists, institutions, and trade restrictions : a review article," Policy Research Working Paper Series 78, The World Bank.
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