Endogenous Preferential Trade Agreements

Paz, Sánchez de; Peteiro, Novo; Antonio, José; Naya, Méndez

doi:1999.14.3.419

The Journal of Economic Integration 1999 September;14(3) :419-431.
DOI: https://doi.org/10.11130/jei.1999.14.3.419

Endogenous Preferential Trade Agreements

Sánchez de Paz, Novo Peteiro, José Antonio, Méndez Naya,

Universidade da Coruña

ABSTRACT

This paper shows that preferential trade agreements can emerge in an endogenous way. We use a simple international trade model where governments fix their tariffs in order to maximize social welfare. We find that when countries behave in a non co-operative way this performance leads to tariff discrimination. This result holds whether firms play a Cournot strategy or whether they follow a Stackelberg 's leader-follower strategy. This paper also analyzes whether multilateralism and regionalism are complementary or substitutive processes. It is concluded that, in spite of the fact that absolute protection is reduced as a result of the economic integration process, relative protection against the rest of the world increases and, therefore, the two processes should not be considered as complementary.

Keywords: E