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External tariffs under a free-trade area

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  • Patricia Tovar

Abstract

How do free-trade areas affect the tariffs that member countries impose against non-members? There is no consensus in the literature regarding this important question. In this study, we use a political-economy model of endogenous protection to show that if individual preferences exhibit loss aversion or if the government's objective is characterized by diminishing marginal political support, a free-trade area can lead member countries to increase their external tariffs and thus act as a stumbling block to unilateral liberalization. We also argue that the stumbling block result is more likely to arise under loss aversion than under diminishing marginal political support and confirm this using a simulation. Finally, we show that the stumbling block effect can also take place under multilateral liberalization. Our results highlight a new type of mechanism through which preferential trade agreements may affect external tariffs.

Suggested Citation

  • Patricia Tovar, 2014. "External tariffs under a free-trade area," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(5), pages 656-681, August.
  • Handle: RePEc:taf:jitecd:v:23:y:2014:i:5:p:656-681
    DOI: 10.1080/09638199.2013.764920
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    File URL: http://hdl.handle.net/10.1080/09638199.2013.764920
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    References listed on IDEAS

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    1. Baybars Karacaovali, 2011. "Trade Policy Determinants and Trade Reform in a Developing Country," Working Papers 201115, University of Hawaii at Manoa, Department of Economics.
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    Cited by:

    1. Baybars Karacaovali, 2016. "Trade-diverting free trade agreements, external tariffs, and feasibility," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(1), pages 1-22, February.

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