Working Paper: CEPR ID: DP1690
Authors: Maurice Schiff; L Alan Winters
Abstract: 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
Keywords: regional integration; diplomacy; security
JEL Codes: F02; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Formation of a customs union (CU) (F15) | Enhanced economic cooperation and security among member states (F55) |
| Deep integration (exogenous) (O36) | Lower optimum external tariffs (F14) |
| Deep integration (endogenous) (F15) | Higher external tariffs prior to integration (F15) |
| Higher external tariffs prior to integration (F15) | Incentivize cooperation (C71) |
| Deep integration (endogenous) (F15) | Lower external tariffs thereafter (F15) |
| Optimum external tariffs (F14) | Decline over time (C41) |
| Enlargement of the bloc size (F12) | Raise welfare (I38) |
| Enlargement of the bloc size (F12) | Ambiguous impact on external tariffs (F69) |