Regionalism versus multilateralism

The author focuses on whether regionalism sets up forces that encourage or discourage evolution toward globally free trade. Although models can be built suggesting either conclusion, these models are still so abstract that they should be viewed as parables rather than sources of testable predictions. This paper presents more conclusions about research strategy than about the world we live in. Among the conclusions reached is that the term multilateralism needs to be defined in every instance. Also, sector-specific lobbies are a danger if regionalism is permitted because they tend to stop blocs from moving all the way to global free trade. While regionalism's direct effect on multilateralism is important, the indirect effect is more because it changes the ways in which groups of countries interact and respond to shocks in the world economy. Furthermore, regionalism, by allowing stronger internalization of the gains from trade liberalization, seems likely to facilitate freer trade when it is initially highly restricted. Lastly, the possibility of regionalism probably increases the risks of catastrophe in the trading system because it essentially coerces trading partners to come to the multilateral negotiating table and regionalism, being motivated by insurance incentives and"shiftable externalities."