IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Free Trade Areas with Politically Active Oligopolies

  • Emanuel Ornelas

    (University of Wisconsin)

Registered author(s):

    I evaluate in this paper the effects of Free-Trade Areas (FTAs) on the incentives for further multilateral liberalization (ML) using a model that emphasizes the role of oligopolistic industries in creating both reasons for strategic trade policies and political pressures aimed to affect trade policy decisions. In this context, I find that FTAs are in general unable to undermine an otherwise feasible ML process. The primary reason regards an identified "tariff complementarity effect," which indicates that a FTA induces its members to reduce their remaining tariffs. This effect reflects mainly the reduction of the strategic reasons from protection under a FTA, and ensures a move toward "trade creation." The introduction of political pressures may revert that result. Nevertheless, this would happen only in the presence of coordination failures between the national oligopolies, and even in that case such undermining would be unlikely to occur.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    File Function: main text
    Download Restriction: no

    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1457.

    in new window

    Date of creation: 01 Aug 2000
    Date of revision:
    Handle: RePEc:ecm:wc2000:1457
    Contact details of provider: Phone: 1 212 998 3820
    Fax: 1 212 995 4487
    Web page:

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Robert W. Staiger, 1994. "A Theory of Gradual Trade Liberalization," NBER Working Papers 4620, National Bureau of Economic Research, Inc.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
    3. 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 635-57, August.
    4. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers 5020, National Bureau of Economic Research, Inc.
    5. Bagwell, Kyle & Staiger, Robert, 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," CEPR Discussion Papers 962, C.E.P.R. Discussion Papers.
    6. 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.
    7. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
    8. Anderson, Kym & Norheim, Hege, 1993. "Is World Trade Becoming More Regionalized?," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 91-109, June.
    9. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
    10. repec:tpr:qjecon:v:113:y:1998:i:1:p:227-250 is not listed on IDEAS
    11. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
    12. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
    13. Pravin Krishna, . "Regionalism and Multilaterialism: A Political Economy Approach," Working Papers 96-5, Brown University, Department of Economics.
    14. Wilfred J. Ethier, 1998. "Regionalism in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1214-1245, December.
    15. Raymond Riezman, 1999. "Can Bilateral Trade Agreements Help Induce Free Trade?," CSGR Working papers series 44/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
    16. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August.
    17. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
    18. Fernandez, Raquel & Portes, Jonathan, 1998. "Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements," World Bank Economic Review, World Bank Group, vol. 12(2), pages 197-220, May.
    19. Grether, Jean-Marie & Olarreaga, Marcelo, 1998. "Preferential and non-preferential trade flows in world trade," WTO Staff Working Papers ERAD-98-10, World Trade Organization (WTO), Economic Research and Statistics Division.
    20. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
    21. repec:tpr:qjecon:v:117:y:2002:i:2:p:571-608 is not listed on IDEAS
    22. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:1457. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.