Endogenous trade bloc formation in an asymmetric world

Melatos, Mark; Woodland, Alan D.

doi:10.1016/j.euroecorev.2006.06.005

Cited by 42 publications

(56 citation statements)

References 18 publications

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“…17 Specifically, the provision of nondiscrimination in the GATT/WTO requires that tariff concessions must be extended to 16 Ornelas (2007) and Saggi & Yildiz (2008) develop a related argument in oligopolistic models, the latter focusing on coalition-proof Nash equilibrium and the former on the core. Melatos & Woodland (2007) also adopt the core as the equilibrium concept when studying trade bloc formation.…”

Section: The Impact Of Regionalism On Multilateralismmentioning

confidence: 99%

Regional Trade Agreements

2010

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This article reviews the theoretical and the empirical literature on regionalism. The formation of regional trade agreements has been, by far, the most popular form of reciprocal trade liberalization in the past 15 years. The discriminatory character of these agreements has raised three main concerns: that trade diversion would be rampant, because special interest groups would induce governments to form the most distortionary agreements; that broader external trade liberalization would stall or reverse; and that multilateralism could be undermined. Theoretically, all these concerns are legitimate, although there are also several theoretical arguments that oppose them. Empirically, neither widespread trade diversion nor stalled external liberalization has materialized, whereas the undermining of multilateralism has not been properly tested. There are also several aspects of regionalism that have received too little attention from researchers, but which are central to understanding its causes and consequences.

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Section: The Impact Of Regionalism On Multilateralismmentioning

confidence: 99%

Regional Trade Agreements

2010

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“…For example, Tharakan and Thisse (2002) examine trade between countries of different sizes, and find that small country always gains from trade while large country may not benefit from trade. Melatos and Woodland (2007, 2009) considered the formation of regional trade agreement between two asymmetric countries. In their case, countries first agree whether or not to form a regional trade agreement and then choose the optimal tariff rates they wish to levy on non‐members.…”

Section: Introductionmentioning

confidence: 99%

Integration of Asymmetric Nations*

2011

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We examine the incentives for integration between two nations of different sizes in a set‐up similar to that used by Alesina and Spolaore (2003): individuals are indexed by location, each nation (comprising of individuals) is an interval, and the public good in each nation is provided from its capital located in the middle of the nation. We analyse integration where each country gives up its sovereignty and there is a joint decision about the location of the new nation's capital. We find that integration occurs if the size differences are below a certain threshold. After integration, a new capital is built (in the most efficient location) if the costs of relocating the capital are not too high. The results are robust in a number of plausible decision‐making scenarios. Either country can be the major beneficiary of integration, depending on transport and capital maintenance costs.

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“…This factor plays an important role because it determines the extent of strategic delegation in a CU, which may lead to the common external tariffs being inefficiently high. In fact, if the degree of geographic specialization is very high (α close to 1), equation (26) indicates that the elected representative will be significantly more protectionist than the median voter in the CU regime, whereas no strategic delegation occurs in an FTA. This might make the FTA the equilibrium choice as shown in the upper-right region in Figure 4.…”

Section: Main Predictionsmentioning

confidence: 99%

“…Turning to trade imbalances, our measure IM B abt is built using information on bilateral trade flows from the IMF's direction of trade database. 26 In particular, it is defined as the difference between bilateral exports in both directions between the two countries of a given country-pair, divided by the summation of the two bilateral exports for the same pair of countries. 27 This measure can range between zero, when trade is balanced, and unity (or 100 percent), when trade is unidirectional.…”

Section: Datasetmentioning

confidence: 99%

The Political Economy of Preferential Trade Agreements: An Empirical Investigation

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In this paper, we develop a political economy model to study the decision of representative democracies to join a preferential trading agreement (PTA), distinguishing between free trade areas (FTA) and customs unions (CU). Our theoretical analysis suggests that income inequality and bilateral trade imbalances are important factors in determining the formation of PTAs, while differences in production structure among prospective member countries determine whether a CU or an FTA will emerge in equilibrium. Using a sample of 136 countries over the period 1960-2005, our empirical analysis lends strong support to these predictions: Income inequality and trade imbalances both reduce the likelihood of PTA formation, while geographical specialization increases the conditional probability of an FTA (over a CU). Terms of use: Documents in EconStor may

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Endogenous trade bloc formation in an asymmetric world

Cited by 42 publications

References 18 publications

Regional Trade Agreements

Regional Trade Agreements

Integration of Asymmetric Nations*

The Political Economy of Preferential Trade Agreements: An Empirical Investigation

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