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Regional integration and lobbying for tariffs against non members

Author: Cadot, Olivier ; Olarreaga, M. ; De Melo, J.INSEAD Area: Economics and Political Science Series: Working Paper ; 96/34/EPS Publisher: Fontainebleau : INSEAD, 1996.Language: EnglishDescription: 23 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: Using an extension of the influence-driven lobbying approach developed by Grossman and Helpman, we study the impact of regional trading arrangements (RIAS) on trade policy towards non-members in a three-good, three-country model. We explore under what conditions the formation of an RIA between countries A and B leads, through lobbying pressure, to a higher or lower tariff against country C. Comparing free-trade areas (FTAs) with and without rules of origin and customs unions (CUs) with varying degrees of economic and political integration, we show how increasingly deep integration, both with an FTA and a CU, can lead to rising protection against non-member imports. These results, which abstract from two differences between FTAs and CUs, namely the extent of free-riding in a CU and the component of a CU's tariffs designed to improve the members' terms of trade, need to be qualified accordingly. As they stand, they nevertheless suggest that FTAs are likely to welfare-dominate CUs
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Using an extension of the influence-driven lobbying approach developed by Grossman and Helpman, we study the impact of regional trading arrangements (RIAS) on trade policy towards non-members in a three-good, three-country model. We explore under what conditions the formation of an RIA between countries A and B leads, through lobbying pressure, to a higher or lower tariff against country C. Comparing free-trade areas (FTAs) with and without rules of origin and customs unions (CUs) with varying degrees of economic and political integration, we show how increasingly deep integration, both with an FTA and a CU, can lead to rising protection against non-member imports. These results, which abstract from two differences between FTAs and CUs, namely the extent of free-riding in a CU and the component of a CU's tariffs designed to improve the members' terms of trade, need to be qualified accordingly. As they stand, they nevertheless suggest that FTAs are likely to welfare-dominate CUs

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