Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?

Olivier Cadot (), Jaime de Melo () and Marcelo Olarreaga ()

No 1878, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using the influence-driven approach to endogenous trade-policy determination, we show how a free-trade agreement (FTA) with rules of origin can work as a device to compensate losers from trade liberalization. The FTA constructed in this paper is characterized by external tariff structures that are negatively correlated across member countries, ensuring efficiency gains and, through reduced average protection, compatibility with the multilateral trading system’s requirements. It is also politically viable and we demonstrate that, in the countries concerned, governments are willing to include its formation in the political agenda even though, in equilibrium, political contributions from producer lobbies decline after the agreement.

Keywords: free-trade areas; Political Economy (search for similar items in EconPapers)
JEL-codes: F11 F13 F15 (search for similar items in EconPapers)
Date: 1998-05
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Related works:
Working Paper: Can Bilateralism Ease the Pains of Multilateral Trade Liberalization? (1998)
Journal Article: Can bilateralism ease the pains of multilateral trade liberalization? (2001)
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