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Discussion Paper Details

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Title: Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?

Author(s): Olivier Cadot, Jaime de Melo and Marcelo Olarreaga

Publication Date: May 1998

Keyword(s): free-trade areas and Political Economy

Programme Area(s): International Trade and Regional Economics

Abstract: Using the influence-driven approach to endogenous trade-policy determination, we show how a free-trade agreement (FTA) with rules of origin can work as a device to compensate losers from trade liberalization. The FTA constructed in this paper is characterized by external tariff structures that are negatively correlated across member countries, ensuring efficiency gains and, through reduced average protection, compatibility with the multilateral trading system?s requirements. It is also politically viable and we demonstrate that, in the countries concerned, governments are willing to include its formation in the political agenda even though, in equilibrium, political contributions from producer lobbies decline after the agreement.

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Bibliographic Reference

Cadot, O, de Melo, J and Olarreaga, M. 1998. 'Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1878