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Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?

Author

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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 even though, in equilibrium, political contributions from producer lobbies decline after the agreement.

Suggested Citation

  • Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 1998. "Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?," CEPR Discussion Papers 1878, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1878
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    References listed on IDEAS

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    1. Anne O. Krueger, 1993. "Free Trade Agreements as Protectionist Devices: Rules of Origin," NBER Working Papers 4352, National Bureau of Economic Research, Inc.
    2. Jaime De Melo & Arvind Panagariya & Dani Rodrik, 2015. "The New Regionalism: A Country Perspective," World Scientific Book Chapters,in: Developing Countries in the World Economy, chapter 14, pages 323-357 World Scientific Publishing Co. Pte. Ltd..
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    5. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
    6. Arye L. Hillman & Ngo Van Long & Peter Moser, 1995. "Modelling Reciprocal Trade Liberalization: The Political-economy and National-welfare Perspectives," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(III), pages 503-515, September.
    7. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
    8. Winters, L. Alan, 1996. "Regionalism versus multilateralism," Policy Research Working Paper Series 1687, The World Bank.
    9. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
    10. Cadot, Olivier & de Melo, Jaime & Olarraga, Marcelo, 1999. "Regional Integration and Lobbying for Tariffs against Nonmembers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 635-657, August.
    11. Krueger, Anne O., 1997. "Free trade agreements versus customs unions," Journal of Development Economics, Elsevier, vol. 54(1), pages 169-187, October.
    12. 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.
    13. 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.
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    Citations

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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. Caroline Freund, 2010. "Third‐country Effects of Regional Trade Agreements," The World Economy, Wiley Blackwell, vol. 33(11), pages 1589-1605, November.
    3. 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.
    4. Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 2000. "The Protectionist Bias of Duty Drawbacks and the New Regionalism," CEPR Discussion Papers 2559, C.E.P.R. Discussion Papers.
    5. 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.
    6. Debashis Chakraborty, 2007. "IBSAC (INDIA, BRAZIL, SOUTH AFRICA, CHINA): A Potential Developing Country Coalition in WTO Negotiations," Working Papers id:958, eSocialSciences.
    7. 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.

    More about this item

    Keywords

    free-trade areas; Political Economy;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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