Endogenous Protection and Trade Diversion

Martin Richardson

Chapter 5 in Dimensions of Trade Policy, 2017, pp 107-127 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Traditional positive analysis of preferential trading areas has focused on the trade-offs between (beneficial) trade creation and (potentially harmful) trade diversion. We consider the latter phenomenon in the formation of a free-trade area (FTA) between countries where tariffs against non-members are set endogenously. We show that such tariffs will fall consequent to the formation of FTAs and trade diversion is likely to become trade creation. This is illustrated in a model in which tariffs are levied to maximize a political support function. We conclude with some comments on the generality of this result and directions for future research.

Keywords: Trade Policy; Preferential Trading Agreements; Content Protection; Parallel Imports (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2017
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Journal Article: Endogenous protection and trade diversion (1993)
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