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Home > Data & Research > Research > Programs > Trade Research

The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union

Author:	Karacaovali, Baybars; Limao, Nuno;	Collection Title:	Policy, Research working paper ; no. WPS 3493
Country:	World;	Date Stored:	2005/02/22
Document Date:	2005/01/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	The World Region
Report Number:	WPS3493	SubTopics:	Rules of Origin; Environmental Economics & Policies; Economic Theory & Research; Export Competitiveness; Trade Policy; Free Trade; Trade and Regional Integration
Volume No:	1 of 1

Summary: There has been an explosion in the number of preferential trade agreements in the past decade. Preferential trade agreements are characterized by liberalization with respect to only a few partners and thus they can potentially clash with and retard multilateral trade liberalization. Despite this important concern with preferential trade agreements, there is almost no systematic evidence on whether they actually affect multilateral trade liberalization. The authors model the effect of preferential trade agreements on multilateral trade liberalization and show that preferential trade agreements slow down multilateral trade liberalization unless they have a common external tariff and allow for internal transfers. Next, they use detailed data on product-level tariffs negotiated by the European Union in the past two multilateral trade rounds to structurally estimate their model. The authors confirm the main prediction-the European Union's preferential trade agreements have clashed with its multilateral trade liberalization--and find that the effect is quantitatively significant. Moreover, they also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of multilateral liberalization in the European Union.


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