Working Paper: CEPR ID: DP2480
Authors: Eric W. Bond; Constantinos Syropoulos; L. Alan Winters
Abstract: We construct a three-country, two-bloc, multi-product trade model in which tariff agreements between customs union members are binding whereas inter-bloc tariff agreements are self-enforcing. Our main objective is to explore how the liberalization of trade between customs union members (i.e. the deepening of regional integration) affects the sustainability of tariff agreements with the rest of the world (ROW). We derive conditions under which Kemp-Wan (1976) adjustments in the external tariffs of union members result in self-enforcing tariff agreements with ROW and then use these adjustments to evaluate the general tariff-setting incentives of the two trading blocs.
Keywords: regional integration; sustainable tariff agreements; Kemp-Wan tariff adjustments; Europe 1992
JEL Codes: F02; F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| internal trade liberalization (F19) | sustainability of tariff agreements with the rest of the world (F13) |
| Kemp-Wan tariff adjustment (F16) | welfare level of the outside country under the agreement (I30) |
| internal tariff reductions (F15) | intra-union trade (F15) |
| intra-union trade (F15) | attractiveness of existing agreements with the ROW (L14) |
| Kemp-Wan adjustment (F32) | maintains incentive compatibility (D82) |
| Kemp-Wan adjustment (F32) | new sustainable agreement (Q01) |