DP1690 Regional Integration as Diplomacy

Author(s): Maurice Schiff, L. Alan Winters
Publication Date: October 1997
Keyword(s): Diplomacy, Regional Integration, Security
JEL(s): F02, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1690

Security threats have moved neighbouring countries to form regional integration arrangements (RIAs), including the European Coal and Steel Community (ECSC, 1951), the EEC (1957), and various RIAs among developing countries. This paper shows that an RIA ? together with domestic taxes ? is an optimal response to security concerns among neighbouring countries. It shows that: i) the optimum external tariffs are likely to decline over time; ii) deep integration implies lower optimum external tariffs if it is exogenous, and higher optimum external tariffs before deep integration and lower ones thereafter if deep integration is endogenous; and iii) enlargement of bloc size has an ambiguous impact on external tariffs but raises welfare, and has some form of domino effect