Regional Integration and Lobbying for Tariffs Against Non-members

Olivier Cadot, Jaime de Melo and Marcelo Olarreaga

No 1448, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using an extension of the influence-driven lobbying approach developed by Grossman and Helpman, we study the impact of regional integration arrangements (RIAs) on trade policy towards non-members in a three-good, three-country model. We explore under what conditions the formation of an RIA between countries A and B leads, through lobbying pressure, to a higher or lower tariff against country C. Comparing free trade areas (FTAs) with and without rules of origin and customs unions (CUs) with varying degrees of economic and political integration, we show how increasingly deep integration, both within an FTA and a CU, can lead to rising protection against non-member imports. These results, which abstract from two differences between FTAs and CUs, namely the extent of free-riding in CUs and the component of a CU’s tariffs designed to improve the members’ terms of trade, need to be qualified accordingly. As it stands, the results nevertheless suggest that FTAs are likely to welfare-dominate CUs.

Keywords: Customs Union; Free Trade Area; Political Economy (search for similar items in EconPapers)
JEL-codes: F11 F13 F15 (search for similar items in EconPapers)
Date: 1996-08
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Citations: View citations in EconPapers (6)

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Journal Article: Regional Integration and Lobbying for Tariffs against Nonmembers (1999)
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