International Sourcing, Complementary Inputs, and the Structure of Trade Agreements: Deep, Shallow, Narrow, and Wide

Richard Chisik and Sara Rohany Tabatabai

No 79, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: We analyze Preferential Trade Agreement (PTA) formation among a subset of members of a multilateral agreement when imported inputs are complementary to one another. A shallow (focused only on border policies) multilateral agreement does not place countries on the efficiency frontier. Furthermore, no subset of countries will form a shallow PTA. Alternatively, a deep PTA that addresses behind-the-border policies increases each country's welfare. This result suggests that the recent proliferation of PTA formation is driven by a need for deep integration. Although these deep PTAs increase welfare over a shallow multilateral agreement the efficiency frontier can only be reached by a deep multilateral agreement that covers both border and behind-the-border policies. Whether a deep PTA can generate consensus approval for further multilateral-deep integration depends on the structure of the PTA and the success of the multilateral-shallow agreement in lowering tariffs.

Date: 2020-11
New Economics Papers: this item is included in nep-int
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Journal Article: International sourcing, complementary inputs, and the structure of trade agreements: Deep, shallow, narrow, and wide (2022)
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