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1999•Review of International EconomicsRequires access

Customs Union or Free Trade Area? The Role of Political Asymmetries

Subhayu Bandyopadhyay, Howard J. Wall

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Abstract

When trade policy is determined endogenously by lobbying, it matters whether countries are arranged into a customs union or a free trade area. This paper compares the two regimes when the member governments are asymmetric in their susceptibilities to lobbying and in their bargaining power within a customs union. In the model, a customs union never leads to lower tariffs for both countries, whereas it can lead to higher tariffs for both.

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What this paper is about

When trade policy is determined endogenously by lobbying, it matters whether countries are arranged into a customs union or a free trade area. This paper compares the two regimes when the member governments are asymmetric in their susceptibilities to lobbying and in their bargaining power within a customs union. In the model, a customs union never leads to lower tariffs for both countries, whereas it can lead to higher tariffs for both.

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OpenAlex reports 15 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

When trade policy is determined endogenously by lobbying, it matters whether countries are arranged into a customs union or a free trade area. This paper compares the two regimes when the member governments are asymmetric in their susceptibilities to lobbying and in their bargaining power within a customs union. In the model, a customs union never leads to lower tariffs for both countries, whereas it can lead to higher tariffs for both.

Key concepts: Customs union, International free trade agreement, Economics, International economics, Politics, Commercial policy, International trade, Free trade

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