Regionalism and Incentives for Multilateralism

Abstract

The paper studies the effects of regional integration on the incentives of members and non-members to undertake multilateral trade liberalization. Using a three-country political economy model with imperfect competition, it shows how regionalism can undermine support for multilateralism. Discriminatory trade policies alter the balance of gains and losses that members and non-members experience from multilateral liberalization. As the degree of preference within the PTA increases, the member countries' support for large multilateral tariff cuts, as well as the excluded countries' support for small multilateral trade liberalization, declines.

JEL Classification: F02, F12, F15, F13