Template-Type: ReDIF-Paper 1.0
Author-Name: James Lake
Author-X-Name-First: James
Author-X-Name-Last: Lake
Author-Email: jlake@smu.edu
Author-Workplace-Name: Department of Economics, Southern Methodist University
Author-Name: Moise Nken
Author-X-Name-First: Moise
Author-X-Name-Last: NKen
Author-Email: moise.nken@ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Author-Name: Halis Murat Yildiz
Author-X-Name-First: Halis
Author-X-Name-Last: Yildiz
Author-Email: hyildiz@ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada 
Title: Tariff Bindings and the Dynamic Formation of Preferential Trade Agreements
Abstract:  We show that multilateral tari§ binding liberalization substantially impacts the nature and extent of Preferential Trade Agreement (PTA) formation. First, it shapes the nature of forces constraining expansion of Free Trade Agreements (FTAs). The constraining force is a free riding incentive of FTA non-members under relatively high bindings but an exclusion incentive of FTA members under relatively low bindings. Second, multilateral tari§ binding liberalization shapes the role played by PTAs in the attainment of global free trade. Initially, tari§ binding liberalization leads to Custom Union (CU) formation in equilibrium but in a way that undermines the pursuit of global free trade. However, further tari§ binding liberalization leads to FTA formation in equilibrium and in a way that facilitates the attainment of global free trade. Our theoretical analysis also has implications regarding recent empirical discussions over the relative merits of FTAs versus CUs.
Length: 45 pages
Creation-Date: 2018-05
Number: 072
File-URL: http://economics.ryerson.ca/workingpapers/wp072.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp072