Working Paper: CEPR ID: DP2002
Authors: Olivier Cadot; Jaime de Melo; Marcelo Olarreaga
Abstract: This paper explores how political-economy forces shape quantitative barriers against the rest of the world in a FTA. We show that whereas the dilution of lobbying power in a FTA typically leads to a relaxation of external quotas, this result is likely to be overturned as integration deepens. In particular, we show that cooperation among member countries on the level of their external quotas, cross-border lobbying by import-competing interests in the free-trade area and the consolidation of national external quotas into a single one, all lead to stiffer restrictions against imports from the rest of the world. We also show that unlike tariffs, endogenous quotas are not crucially affected by the presence of rules of origin.
Keywords: FTA; Quotas; Political Economy
JEL Codes: F11; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FTAs (F15) | external quotas (C80) |
| dilution of lobbying power in a FTA (D72) | relaxation of external quotas (O24) |
| integration deepens (F15) | cooperation on external quotas (F55) |
| cooperation on external quotas (F55) | tighter restrictions against imports from non-member countries (F13) |
| tightening external quota by a member country (F55) | benefit import-competing lobbies in other member countries (F14) |
| tightening external quotas (D45) | collective tightening of external quotas (F55) |
| endogenous quotas (F14) | less affected by rules of origin (F69) |