Customs Union or Free Trade Area? The Role of Political Asymmetries

Subhayu Bandyopadhyay and Howard Wall

Review of International Economics, 1999, vol. 7, issue 4, 665-72

Abstract: When trade policy is determined endogenously by lobbying, it matters whether countries are arranged into a customs union or a free trade area. This paper compares the two regimes when the member governments are asymmetric in their susceptibilities to lobbying and in their bargaining power within a customs union. In the model, a customs union never leads to lower tariffs for both countries, whereas it can lead to higher tariffs for both. Copyright 1999 by Blackwell Publishing Ltd.

Date: 1999
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