Preferential Trade Agreements and Multilateral Tariff Cooperation

29 Pages Posted: 19 Jan 2006

See all articles by Kamal Saggi

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Abstract

Are preferential trade agreements (PTAs) building or stumbling blocks for multilateral trade liberalization? I address this question in an infinitely repeated tariff game between three countries engaged in intraindustry trade under oligopoly. The central result is that when countries are symmetric, a free trade agreement (FTA) undermines multilateral tariff cooperation by adversely affecting the cooperation incentive of the nonmember whereas a customs union (CU) does so via its effect on the cooperation incentives of members. However, when countries are asymmetric with respect to either market size or cost, there exist circumstances where PTAs facilitate multilateral tariff cooperation.

Suggested Citation

Saggi, Kamal, Preferential Trade Agreements and Multilateral Tariff Cooperation. International Economic Review, Vol. 47, No. 1, pp. 29-57, February 2006, Available at SSRN: https://ssrn.com/abstract=877097 or http://dx.doi.org/10.1111/j.1468-2354.2006.00371.x

Kamal Saggi (Contact Author)

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

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