Cross-border Lobbying in Preferential Trading Agreements: Implications for External Tariffs and Welfare

This paper examines the effect of cross‐border lobbying on domestic lobbying and on external tariffs in both Customs Union (CU) and Free Trade Area (FTA). We do so by developing a two‐stage game which endogenizes the tariff formation function in a political economic model of the directly unproductiv...

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Bibliographic Details
Published in:Review of international economics 2012-11, Vol.20 (5), p.1034-1045
Main Authors: Bandyopadhyay, Subhayu, Lahiri, Sajal, Wall, Howard J.
Format: Article
Language:English
Subjects:
Cross border transactions
Customs unions
Economic models
Economic theory
Free trade
Free trade areas
Game theory
Global economy
International trade
Lobbying
Preferential tariffs
Rent-seeking
Studies
Tariffs
Trade agreements
Trade preferences
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Summary:This paper examines the effect of cross‐border lobbying on domestic lobbying and on external tariffs in both Customs Union (CU) and Free Trade Area (FTA). We do so by developing a two‐stage game which endogenizes the tariff formation function in a political economic model of the directly unproductive rent‐seeking activities type. We find that cross‐border lobbying un‐ambiguously increases both domestic lobbying and the equilibrium common external tariffs in a CU. The same result also holds for FTA provided tariffs for the member governments are strategic complements. We also develop a specific oligopolistic model of FTA and show that tariffs are indeed strategic complements in such a model.
ISSN:0965-7576
1467-9396
DOI:10.1111/roie.12011