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The clash of liberalizations: preferential versus multilateral trade liberalization in the European Union

Baybars Karacaovali and Nuno Limão ()

No 3493, Policy Research Working Paper Series from The World Bank

Abstract: There has been an explosion in the number of preferential trade agreements in the past decade. Preferential trade agreements are characterized by liberalization with respect to only a few partners and thus they can potentially clash with and retard multilateral trade liberalization. Despite this important concern with preferential trade agreements, there is almost no systematic evidence on whether they actually affect multilateral trade liberalization. The authors model the effect of preferential trade agreements on multilateral trade liberalization and show that preferential trade agreements slow down multilateral trade liberalization unless they havea common external tariff and allow for internal transfers. Next, they use detailed data on product-level tariffs negotiated by the European Union in the past two multilateral trade rounds to structurally estimate their model. The authors confirm the main prediction-the European Union's preferential trade agreements have clashed with its multilateral trade liberalization--and find that the effect is quantitatively significant. Moreover, they also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of multilateral liberalization in the European Union.

Keywords: Economic Theory&Research; Rules of Origin; Export Competitiveness; Environmental Economics&Policies; Trade Policy; Environmental Economics&Policies; Economic Theory&Research; Trade and Regional Integration; Trade Policy; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-pol
Date: 2005-01-01
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Working Paper: The Clash of Liberalizations: Preferential versus Multilateral Trade Liberalization in the European Union (2008) Downloads
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