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Institutions and Deep Integration

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Abstract

The paper explains why institutions matter for a deep integration process, as illustrated by the liberalization of Non-Tariff Barriers (NTBs) in Europe. We argue that deep trade liberalization requires supranational institutions of deeper integration that permit enforcement, surveillance, and adjudication. To support the claim, we develop a simple model showing why mutual recognition of norms and testing procedures, coupled with a supranational institution can shape the equilibrium level of NTBs in every member state. Member states host special-interest groups that make political contributions to influence their respective government's choice of NTBs. Politicians maximize a realistic welfare function that favours contributions over consumer's social welfare. The supranational institution drains the incentive to lobby for NTBs. The paper discusses the structure of protection that emerges in the equilibrium, stressing how the lobbies' contributions vary with the effectiveness of the supranational institution in reducing NTBs in the final policy outcome. We then use the model to explain the liberalization of NTBs in the EU.

Suggested Citation

  • Alberto Amurgo Pacheco, 2006. "Institutions and Deep Integration," IHEID Working Papers 07-2006, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heiwp07-2006
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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP07-2006.pdf
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    References listed on IDEAS

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    1. Richard E. Baldwin, 1997. "The Causes of Regionalism," The World Economy, Wiley Blackwell, vol. 20(7), pages 865-888, November.
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    3. Soloaga, Isidro & Alan Wintersb, L., 2001. "Regionalism in the nineties: what effect on trade?," The North American Journal of Economics and Finance, Elsevier, pages 1-29.
    4. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, pages 682-698.
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    6. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters,in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356 National Bureau of Economic Research, Inc.
    7. Eric W. Bond & Raymond G. Riezman & Constantinos Syropoulos, 2013. "A strategic and welfare theoretic analysis of free trade areas," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 8, pages 101-127 World Scientific Publishing Co. Pte. Ltd..
    8. Baldwin, Richard, 1993. "A Domino Theory of Regionalism," CEPR Discussion Papers 857, C.E.P.R. Discussion Papers.
    9. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
    10. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, pages 170-192.
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    Cited by:

    1. Pierre Gosselin & Aileen Lotz & Charles Wyplosz, 2009. "Interest Rate Signals and Central Bank Transparency," NBER Chapters,in: NBER International Seminar on Macroeconomics 2007, pages 9-51 National Bureau of Economic Research, Inc.

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    Keywords

    economic integration; endogenous protection; International Economics; Trade; European Union;

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