Cross-Border Lobbying in Preferential Trading Agreements: Implications for External Tariffs

Federal Reserve Bank of St. Louis Working Paper 2009-041A

26 Pages Posted: 25 Aug 2009

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics

Howard J. Wall

Lindenwood University - Center for Economics and the Environment

Date Written: August 24, 2009

Abstract

This paper examines the effect of cross-border lobbying on domestic lobbying and on external tariffs in both Customs Union (CU) and Free Trade Area (FTA). We do so by developing a two-stage game which endogenizes the tariff formation function in a political economic model of the directly unproductive rent-seeking activities type. We find that cross-border lobbying unambiguously increases both domestic lobbying and the equilibrium common external tariffs in a CU. The same result also holds for FTA provided tariffs for the member governments are strategic complements. We also develop a specific oligopolistic model of FTA and show that tariffs are indeed strategic complements in such a model.

Keywords: free trade area, customs union, preferential trading agreements, domestic lobbying, cross-border lobbying, external tariffs

JEL Classification: F13

Suggested Citation

Bandyopadhyay, Subhayu and Lahiri, Sajal and Wall, Howard J., Cross-Border Lobbying in Preferential Trading Agreements: Implications for External Tariffs (August 24, 2009). Federal Reserve Bank of St. Louis Working Paper 2009-041A. Available at SSRN: https://ssrn.com/abstract=1460754 or http://dx.doi.org/10.2139/ssrn.1460754

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics ( email )

MC 415
1000 Faner Drive
Carbondale, IL 62901
United States

Howard J. Wall

Lindenwood University - Center for Economics and the Environment ( email )

209 S. Kingshighway
St. Charles, MO 63301
United States

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