Working Paper: CEPR ID: DP17199
Authors: Mathieu Parenti; Gonzague Vannoorenberghe
Abstract: Which countries should aim for international regulatory cooperation? We develop an imperfectly-competitive trade model where countries differ in technology and regulatory preferences over local consumption externalities. Countries set different product standards, but tailoring products to each market is costly for firms. Trade occurs when Ricardian gains outweigh countries’ asymmetric regulations. Regulatory cooperation is more beneficial for countries with intermediate differences in regulatory preferences, particularly when tariffs are already low. Mutual regulatory concessions allow countries with strong comparative advantages in different externality-generating goods to implement deeper agreements. With highly-dispersed regulatory preferences, international cooperation is characterized by regulatory blocs.
Keywords: deep economic integration; standards; trade policy; trade agreements
JEL Codes: F02; F11; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deeper trade integration (F15) | Increased world welfare (D69) |
| Regulatory cooperation (L51) | Greater trade benefits (F14) |
| Countries with intermediate differences in regulatory preferences (L59) | Regulatory cooperation is more advantageous (L59) |
| Low tariffs (F19) | Deeper agreements despite regulatory discrepancies (G38) |
| Countries with strong comparative advantages in different externality-generating goods (O57) | More likely to benefit from deeper agreements (F55) |