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A Political Economy Analysis of Preferential Trading and Multilateralism

Author

Listed:
  • Pravin Krishna

    (Brown University)

Abstract

This paper examines the impact of Free Trade Areas (FTAs) on the incentives for multilateral liberalization and challenges the contention that Free Trade Areas are superior to GATT style (multilateral) trade liberalization as a way of getting to multilateral free trade for all. Incorporating political economy factors in a model of trade with imperfect competition in segmented markets, this paper reaches two conclusions: First, that preferential arrangements which divert trade away from the rest of the world are more likely to be supported politically, and second, that such preferential arrangements will reduce member country incentives for multilateral liberalization. It is also argued that in some cases this reduction in incentives could be critical: Multilateral liberalization that is initially feasible could be rendered infeasible by preferential arrangements. The larger the trade diversion resulting from the preferential arrangement, the more likely this will be the case.

Suggested Citation

  • Pravin Krishna, 1996. "A Political Economy Analysis of Preferential Trading and Multilateralism," Eastern Economic Journal, Eastern Economic Association, vol. 22(4), pages 477-483, Fall.
  • Handle: RePEc:eej:eeconj:v:22:y:1996:i:4:p:477-483
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume22/V22N4P477_483.pdf
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    References listed on IDEAS

    as
    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
    3. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-519, September.
    4. Panagariya, Arvind & Findlay, Ronald & DEC, 1994. "A political - economy analysis of free trade areas and customs unions," Policy Research Working Paper Series 1261, The World Bank.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Kimakova, Alena & Rajabiun, Reza, 1999. "An Applied General Equilibrium Analysis of EU Integration for Hungary and Slovakia," Transition Economics Series 9, Institute for Advanced Studies.

    More about this item

    Keywords

    Free Trade; Trade;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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