The multilateral trade policy of the Arab league countries: An empirical investigation

Abstract Our paper examines the effects of various features of the Arab League's trade policy (different preferential trade agreements, presence of tariff water, and market power) on the multilateral tariffs applied by its member countries. To carry out our study, we collected product‐level data from 1998 to 2015 with information on applied most‐favoured nations (MFN) tariffs, preferential tariffs, bound tariffs, import trade values, and market power for eleven members of the Arab League countries. Overall, our results suggest that preferential agreements have a building block effect on multilateral tariffs because Arab League members tend to lower their applied MFN tariffs as they grant enhanced preferential access to their partners. Moreover, we find that forming a customs union (CU) among Arab League members led to a lower degree of external trade liberalisation than forming a free trade area (FTA). Importantly, we find that a high degree of importer market power strengthens the building block effect of forming preferential trade agreements.