Exchanging Market Access at the Outsiders' Expense: The Case of Customs Unions
London School of Economics & Political Science (LSE) - Department of Management; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)
Canadian Journal of Economics, Vol. 40, No. 1, pp. 207-224, February 2007
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.
Number of Pages in PDF File: 18Accepted Paper Series
Date posted: January 26, 2007
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