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A Simple Theory of Deep Trade Integration

Author

Listed:
  • Mathieu Parenti

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, ULB - Université libre de Bruxelles, CESifo - CESifo, CEPR - Center for Economic Policy Research)

  • Gonzague Vannoorenberghe

    (UCL - Université Catholique de Louvain = Catholic University of Louvain)

Abstract

Which countries should aim for regulatory cooperation, and to what extent should they pursue it? We develop an imperfectly competitive trade model that accounts for differences in technology and regulatory preferences regarding local consumption externalities across countries. Each country sets unique product standards, and firms incur costs when tailoring products to different markets. Trade occurs when the benefits of comparative advantages outweigh the desire for asymmetric regulations. Our findings indicate that regulatory cooperation, defined as the cooperative setting of standards, is most advantageous for countries with moderate differences in regulatory preferences. Shallow integration, however, falls short of achieving the optimal planner's solution. Countries with strong comparative advantages in distinct externality-generating goods can pursue deeper regulatory cooperation through mutual regulatory concessions. Additionally, when regulatory preferences are highly dispersed, international cooperation tends to form regulatory blocs.

Suggested Citation

  • Mathieu Parenti & Gonzague Vannoorenberghe, 2024. "A Simple Theory of Deep Trade Integration," Working Papers halshs-04721397, HAL.
  • Handle: RePEc:hal:wpaper:halshs-04721397
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04721397v1
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    References listed on IDEAS

    as
    1. Costinot, Arnaud, 2008. "A comparative institutional analysis of agreements on product standards," Journal of International Economics, Elsevier, vol. 75(1), pages 197-213, May.
    2. Aaditya Mattoo & Nadia Rocha & Michele Ruta & Aaditya Mattoo, 2020. "Handbook of Deep Trade Agreements," World Bank Publications - Books, The World Bank Group, number 34055.
    3. Giovanni Maggi & Ralph Ossa, 2020. "Are Trade Agreements Good For You?," NBER Working Papers 27252, National Bureau of Economic Research, Inc.
    4. Schmidt, Julia & Steingress, Walter, 2022. "No double standards: Quantifying the impact of standard harmonization on trade," Journal of International Economics, Elsevier, vol. 137(C).
    5. Brian R. Copeland, 1990. "Strategic Interaction among Nations: Negotiable and Non-negotiable Trade Barriers," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 84-108, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Deep economic integration; Standards; Trade policy; Trade agreements;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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