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Multilateralism and the endogenous formation of PTAs

  • Caroline L. Freund

This paper examines the interaction between preferential trade agreements (PTAs) and multilateral tariff reduction in a model of imperfect competition. A growing literature finds that the formation of PTAs alters the incentives for and the sustainability of multilateral tariff reduction. We show that the causation is not one-sided -- multilateral tariff reduction also affects the formation of PTAs. Specifically, tariff reduction enhances the incentives to form a PTA and increases the likelihood that it is self-enforcing. Thus, each round of multilateral tariff reduction should lead to a new wave of PTAs. This may help to explain the current trend towards regionalism.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1998/614/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1998/614/ifdp614.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 614.

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Date of creation: 1998
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Handle: RePEc:fip:fedgif:614
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  1. Gene M. Grossman & Elhanan Helpman, 1993. "The Politics of Free Trade Agreements," NBER Working Papers 4597, National Bureau of Economic Research, Inc.
  2. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  3. Bagwell, K. & Staiger, R.W., 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," Working papers 9404, Wisconsin Madison - Social Systems.
  4. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers.
  5. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, vol. 80(4), pages 779-95, September.
  6. Bond, Eric W & Syropoulos, Costas & Winters, L. Alan, 2000. "Deepening of Regional Integration and Multilateral Trade Agreements," CEPR Discussion Papers 2480, C.E.P.R. Discussion Papers.
  7. 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.
  8. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
  9. Richardson, Martin, 1993. "Endogenous protection and trade diversion," Journal of International Economics, Elsevier, vol. 34(3-4), pages 309-324, May.
  10. Ethier, Wilfred, 1996. "Regionalism in a multilateral world," Discussion Papers, Series II 314, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  11. Bond, E. & Syropoulos, C., 1993. "Trading Blocs and the Sustainability of Inter-Regional Cooperation," Discussion Papers 93-17, Department of Economics, University of Birmingham.
  12. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  13. 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.
  14. John Kennan & Raymond Riezman, 1990. "Optimal Tariff Equilibria with Customs Unions," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 70-83, February.
  15. Kyle Bagwell & Robert W. Staiger, 1997. "Regionalism and Multilateral Tariff Cooperation," NBER Working Papers 5921, National Bureau of Economic Research, Inc.
  16. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
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