Working Paper: NBER ID: w12545
Authors: Richard Baldwin
Abstract: This paper addresses the final steps to global free trade -- the political economy forces that might drive them, and the role the WTO might play in guiding them. Two facts form the departure point: 1) Regionalism is here to stay; 2) the motley assortment of regional trade agreements is not the best way to organise world trade. Moving to global duty-free trade will require a multilateralisation of regionalism. The paper presents the political economy logic of trade liberalisation and uses it to structure a narrative of world trade liberalisation since 1947. The logic is then used to project the world tariff map in 2010, arguing that the pattern will be marked by fractals – fuzzy, leaky trade blocs made up of fuzzy, leaky sub-blocs (fuzzy since the proliferation of FTAs makes it impossible to draw sharp lines around the 3 big blocs, and leaky since some FTAs create free trade 'canals' linking the blocs). The paper then presents a novel political economy mechanism – spaghetti bowls as building blocs – whereby offshoring creates a force that encourages the multilateralisation of regionalism. Finally, the paper suggests three things the WTO could do to help multilateralise regionalism.
Keywords: regionalism; trade liberalisation; WTO; political economy
JEL Codes: F1; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| existing regional trade agreements (F15) | hinder the efficient organisation of global trade (F13) |
| offshoring (F23) | encourages the multilateralisation of regionalism (F15) |
| offshoring (F23) | domestic firms lobby for trade liberalisation (F13) |
| WTO (F13) | facilitates the transition towards multilateral agreements (F55) |