Cross‐Border Lobbying in Preferential Trading Agreements: Implications for External Tariffs and Welfare

12 Pages Posted: 20 Oct 2012

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: November 2012

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 un‐ambiguously 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.

Suggested Citation

Bandyopadhyay, Subhayu and Lahiri, Sajal and Wall, Howard J., Cross‐Border Lobbying in Preferential Trading Agreements: Implications for External Tariffs and Welfare (November 2012). Review of International Economics, Vol. 20, Issue 5, pp. 1034-1045, 2012. Available at SSRN: https://ssrn.com/abstract=2164583 or http://dx.doi.org/10.1111/roie.12011

Subhayu Bandyopadhyay

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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