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Preferential trade agreements, externalities, and domestic policy

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  • Natalia Bezmaternykh
  • Paul Missios

Abstract

As multilateral trade barriers fall, there are increasing concerns that domestic policies will be used to undermine tariff cooperation. We examine how the ability to use domestic instruments affects the formation of trade agreements, and the resulting implications for the pursuit of free trade. We examine how optimal tariffs relate to domestic policy choices, and how negotiated restrictions on trade policy affect both domestic policies and the incentives to enter different trade agreements. We show that unrestricted domestic policy can lead to very different equilibrium trade agreements than with exogenous domestic policy.

Suggested Citation

  • Natalia Bezmaternykh & Paul Missios, 2023. "Preferential trade agreements, externalities, and domestic policy," Review of International Economics, Wiley Blackwell, vol. 31(5), pages 1571-1601, November.
  • Handle: RePEc:bla:reviec:v:31:y:2023:i:5:p:1571-1601
    DOI: 10.1111/roie.12678
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    References listed on IDEAS

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