Does Regionalism Affect Trade Liberalization Toward Non-Members?

Estevadeordal, Antoni; Freund, Caroline; Ornelas, Emanuel

doi:10.1596/1813-9450-4751

Cited by 82 publications

(78 citation statements)

References 42 publications

(35 reference statements)

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“…Goods 1 and 2 are instead produced by duopolies with one firm being located in country F , and the second in member country A (good 1) and member country B (good 2) respectively. 4 The two goods are produced using labor and a sector specific input according to a constant returns to scale production function, which gives rise to a constant marginal cost of production c (in terms 4 We will relax this assumption in section 5.…”

Section: The Modelmentioning

confidence: 99%

The customs union issue: Why do we observe so few of them?

Facchini

Silva

Willmann

2013

Journal of International Economics

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The number of preferential trade agreements has greatly increased over the past two decades, yet most existing bilateral arrangements take the form of free trade areas, and less than ten percent can be considered to be fully fledged customs unions. This paper develops a political economy model of trade policy under imperfect competition to provide a positive explanation for the prevalence of free trade areas. In a threecountry setting, a representative from each prospective member is elected to determine the tariffs to be applied on imported goods. Under a customs union, the necessity to coordinate tariffs leads voters to strategically delegate power to more protectionist representatives. Contrary to most of the existing literature, we show that strategic delegation may imply that free trade areas increase welfare compared to customs unions. Moreover, the model also indicates that free trade areas are more likely to be politically viable than customs unions. JEL classification numbers: F10, F11, F13

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Section: The Modelmentioning

confidence: 99%

The customs union issue: Why do we observe so few of them?

Facchini

Silva

Willmann

2013

Journal of International Economics

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“…Still, although preferential/regional agreements are seen by some as inimical to the GATT/WTO process (Bhagwati 2008), and perhaps also contrary to the spirit of the Washington Consensus, empirical evidence suggests that there are substantial spillovers from FTA tariff reductions to subsequent unilateral (ex-WTO) MFN tariff reductions. According to Estevadeordal, Freund, and Ornelas (2008), a country that provides preferential tariff-free access in a sector with a 15% MFN tariff is then likely to subsequently lower its MFN tariff by 3 percentage points, suggesting that the WTO mechanism encourages countries to set MFN rates close to prevailing applied rates.…”

Section: Empirical Design and The Great Liberalizationmentioning

confidence: 99%

Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s-2000s

Estevadeordal¹,

Taylor²

2008

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According to the Washington Consensus, developing countries' growth would benefit from a reduction in tariffs and other barriers to trade. But a backlash against this view now suggests that trade policies have little or no impact on growth. If "getting policies right" is wrong or infeasible, this leaves only the more tenuous objective of "getting institutions right" (Easterly 2005, Rodrik 2006. However, the empirical basis for judging recent trade reforms is weak. Econometrics are mostly ad hoc; results are typically not judged against models; trade policies are poorly measured (or not measured at all, as when trade volumes are spuriously used); and the most influential studies in the literature are based on pre-1990 experience (predating the "Great Liberalization" in many developing countries which followed the GATT Uruguay Round). We address all of these concerns-by using a model-based analysis which highlights tariffs on capital and intermediate goods; by compiling new disaggregated tariff measures to empirically test the model; and by employing a treatment-and-control empirical analysis of pre-versus post-1990 performance of liberalizing and nonliberalizing countries. We find evidence that a specific treatment, liberalizing tariffs on imported capital and intermediate goods, did lead to faster GDP growth, and by a margin consistent with theory (about 1 percentage point per annum). We control for other policy changes and address endogeneity concerns. We also find other patterns consistent with the proposed mechanism: changes to other tariffs, e.g. on consumption goods, though collinear with general tariffs reforms, are more weakly correlated with growth outcomes; and the treatment and control groups display different behavior of investment prices and quantities, and capital flows. Does trade policy liberalization promote economic growth? The question has been central to recent economic policy debates since the dawn of the new era of globalization in the 1990s. Yet the opinions of economists, once quite coherent, are now far from unanimous.In the 1990s the so-called "Washington Consensus" (WC) promoted openness to trade as an essential policy reform to promote growth and higher incomes.2 At first, absent statistical evidence, this revolutionary view garnered support as practitioners looked back on the divergent economic fortunes of the fast-growing export-oriented New Industrializing Countries (NICs) of East Asia and the sluggish inward-looking economies of Latin America. Subsequently, a barrage of cross-country econometric studies seemed to lend weight to this view, including well known and widely cited works by Dollar (1992), Sachs and Warner (1995), Edwards (1998), and Frankel and Romer (1999). It was in this intellectual climate that trade barriers fell in many developing countries in what we might call the "Great Liberalization" of the 1990s.A decade later some feel that previous consensus is lost. A recent survey of the World Bank's self-review Learning from Reform by Rodrik (2006) is entitled "Goodbye ...

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“…3 By contrast, existing literature has tended to focus on how the formation of a PTA can induce member countries to reduce their external tari¤s. See Bagwell and Staiger (1997a, 1997b, Bond et al (2004), and Estevadeordal et al (2008). 4 See also Coates and Ludema (2001) for a theory of trade policy leadership based on repeated interaction between a large and a small country.…”

Section: Introductionmentioning

confidence: 99%

External trade diversion, exclusion incentives and the nature of preferential trade agreements

Missios

Saggi

Yildiz

2016

Journal of International Economics

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In a game of endogenous trade agreements between three countries, we show that while the pursuit of customs unions (CUs) prevents global free trade from emerging as a coalition-proof Nash equilibrium, the pursuit of free trade agreements (FTAs) does not. This result re ‡ects the relatively ‡exible nature of FTAs: whereas each FTA member can independently undertake further trade liberalization with respect to the non-member, CU members must do so as a group due to their common external tari¤. By diverting members'exports away from the non-member, both types of trade agreements induce the non-member to voluntarily lower its import tari¤s.

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Does Regionalism Affect Trade Liberalization Toward Non-Members?

Cited by 82 publications

References 42 publications

The customs union issue: Why do we observe so few of them?

The customs union issue: Why do we observe so few of them?

Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s-2000s

External trade diversion, exclusion incentives and the nature of preferential trade agreements

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