Tariff bindings and the dynamic formation of Preferential Trade Agreements

Lake, James; Nken, Moïse; Yildiz, Halis Murat

doi:10.1016/j.jinteco.2019.103279

Cited by 14 publications

(26 citation statements)

References 46 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…While we employ a static PTA formation model in this paper, a dynamic PTA formation model that uses the Markov perfect equilibrium concept, as in Seidmann (2009), Lake and Yildiz (2016) and Lake et al (2020), can be more appealing from the perspective of deriving the entire equilibrium path of agreements. We leave this for future research.…”

Section: Discussionmentioning

confidence: 99%

The role of non‐discrimination in a world of discriminatory preferential trade agreements

Saggi

Wong²,

Yildiz

2022

Canadian J of Economics

Self Cite

View full text Add to dashboard Cite

In a three‐country model of endogenous trade agreements, we study the implications of the most‐favoured‐nation (MFN) clause when countries are free to form discriminatory preferential trade agreements (PTAs). Under current rules of the World Trade Organization (WTO), although non‐member countries face discrimination at the hands of PTA members, they themselves are obligated to abide by MFN and treat PTA members in a non‐discriminatory fashion. The non‐discrimination constraint of MFN reduces the potency of a country's optimal tariffs and therefore its incentive for unilaterally opting out of trade liberalization. Thus, MFN can act as a catalyst for trade liberalization. However, when PTAs take the form of customs unions, the efficiency case for MFN as well as its pro‐liberalization effect is weaker because one country finds itself deliberately excluded by the other two as opposed to staying out voluntarily.

show abstract

Section: Discussionmentioning

confidence: 99%

The role of non‐discrimination in a world of discriminatory preferential trade agreements

Saggi

Wong²,

Yildiz

2022

Canadian J of Economics

Self Cite

View full text Add to dashboard Cite

show abstract

“…4 Domestic policy manipulation alters the absolute gains from any agreement, but most often keeps the ranking of (non-null) agreements unchanged. 5 Our analysis relates to several strands of the literature: the endogenous formation of trade agreements such as Saggi and Yildiz (2010), Missios et al (2016) and Lake et al (2020); the relationship between domestic policy and trade policy, including Staiger (2001a, 2001b), Horn et al (2010), Limão and Tovar (2011), and by association the negotiation policy-linkage models of Ederington (2001) and others; the linkages between trade policy and domestic policies like environmental policy, such as the strategic environmental policy work…”

Section: Orcidmentioning

confidence: 99%

“…of Barrett (1994) and others; and finally the emerging literature on the formation of combined environmental agreements and trade agreements, such as Diamantoudi et al (2018) and Bezmaternykh and Missios (2020). 6 The one exception to this in the literature is Lake et al (2020), in which MFN tariffs exogenously constrained to levels below Nash (i.e., strong tariff bindings) can lead CU formation to free trade while FTAs would not. 7 As comparative disadvantage countries wish to push externalities to foreign countries, the equilibrium agreement is bilateral between one of the those countries and the comparative advantage in the externality-generating good country.…”

Section: Supporting Informationmentioning

confidence: 99%

“…5 5 Our analysis relates to several strands of the literature: the endogenous formation of trade agreements such as Saggi and Yildiz (2010), Missios et al (2016) and Lake et al (2020); the relationship between domestic policy and trade policy, including Bagwell and Staiger (2001a, 2001b), Horn et al (2010), Limão and Tovar (2011), and by association the negotiation policy‐linkage models of Ederington (2001) and others; the linkages between trade policy and domestic policies like environmental policy, such as the strategic environmental policy work of Barrett (1994) and others; and finally the emerging literature on the formation of combined environmental agreements and trade agreements, such as Diamantoudi et al (2018) and Bezmaternykh and Missios (2020). …”

mentioning

confidence: 99%

See 1 more Smart Citation

Preferential trade agreements, externalities, and domestic policy

Bezmaternykh

Missios

2023

Rev International Economics

View full text Add to dashboard Cite

As multilateral trade barriers fall, there are increasing concerns that domestic policies will be used to undermine tariff cooperation. We examine how the ability to use domestic instruments affects the formation of trade agreements, and the resulting implications for the pursuit of free trade. We examine how optimal tariffs relate to domestic policy choices, and how negotiated restrictions on trade policy affect both domestic policies and the incentives to enter different trade agreements. We show that unrestricted domestic policy can lead to very different equilibrium trade agreements than with exogenous domestic policy.

show abstract

“…The methodology and the results contained in this and the following chapters are documented inLake et al (2018).…”

mentioning

confidence: 99%

Essays on the interaction between multilateral tariff bindings and the formation of preferential trade agreements

Moise¹

2021

Preprint

View full text Add to dashboard Cite

This dissertation studies the effect of continual reduction in the tariff bindings and its implications on the static and dynamic formation of preferential trade agreements (PTAs). Underlying trade model is a three country \competing exporters" model. First, utilizing a static game of endogenous trade agreement formation between three countries, we examine the effects of continual reduction in tariff bindings on the role of PTA formation in attaining global free trade. We show that, in the free trade agreement (FTA) formation game, when countries are completely symmetric, free trade always obtains as the coalition-proof Nash equilibrium (CPNE) of the FTA game. Under the customs union (CU) game, CU members exercise an exclusion incentive and free trade fails to be a CPNE. When countries are asymmetric with respect to their comparative advantage, the country with a weaker comparative advantage has an incentive to free ride on trade liberalization of the two others and continual reduction in tariff bindings facilitates FTA formation in attaining global free trade. Next, we employ a three country dynamic model of PTA formation where countries form PTAs over time and investigate the impact of multilateral tariff binding liberalization on the equilibrium extent of FTA and CU formation in isolation. When forming FTAs under relatively high tariff bindings, a myopic free riding incentive of FTA non-members constrains FTA formation. Thus, tariff binding liberalization can facilitate FTA expansion to global free trade. However, when forward looking countries do not value this myopic free riding incentive, tariff binding liberalization can impede FTA expansion to global free trade. In our CU game, CU formation proceeds to global free trade only for relatively high tariff bindings. Finally, we examine the PTA game where countries endogenously choose between CU and FTA formation. Under such a game, we show that the equilibrium emergence of CUs can prevent global free trade that would otherwise occur through FTAs. In contrast, the equilibrium emergence of FTAs can facilitate global free trade that would otherwise not occur through CUs.

show abstract

Tariff bindings and the dynamic formation of Preferential Trade Agreements

Cited by 14 publications

References 46 publications

The role of non‐discrimination in a world of discriminatory preferential trade agreements

The role of non‐discrimination in a world of discriminatory preferential trade agreements

Preferential trade agreements, externalities, and domestic policy

Essays on the interaction between multilateral tariff bindings and the formation of preferential trade agreements

Contact Info

Product

Resources

About