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Exchanging market access at the outsiders' expense: the case of customs unions

Emanuel Ornelas

Canadian Journal of Economics, 2007, vol. 40, issue 1, 207-224

Abstract: Under a customs union, countries can exchange preferential market access by coordinating external tariffs to shift profits from excluded countries. I show that the exporting rents resulting from this coordination can offset trade diversion losses produced by the union, even if its members are relatively small in world markets. Such gains come, however, at the expense of excluded countries. I show that small countries can use customs unions also to foster multilateral cooperation, by increasing the incentives of excluded countries to support global free trade.

JEL-codes: F02 F13 F15 (search for similar items in EconPapers)
Date: 2007
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