Cross-border Lobbying in Preferential Trading Agreements: Implications for External Tariffs and Welfare

Authors

  • Subhayu Bandyopadhyay,

    Corresponding author
    1. Federal Reserve Bank of St. Louis, USA
      Bandyopadhyay: Federal Reserve Bank of St. Louis, Research Division, PO Box 442, St. Louis, MO 63166-0442, USA. E-mail: Subhayu.Bandyopadhyay@stls.frb.org. Lahiri: Southern Illinois University Carbondale, Carbondale, IL 62901-4515, USA. Tel: 618-452-9472; Fax 618-453-9472; E-mail: lahiri@siu.edu. Wall: Institute for the Study of Economics and the Environment, School of Business and Entrepreneurship, Lindenwood University, Saint Charles, MO 63301, USA. E-mail: HWall@lindenwood.edu.
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  • Sajal Lahiri,

    Corresponding author
    1. Southern Illinois University Carbondale, USA
      Bandyopadhyay: Federal Reserve Bank of St. Louis, Research Division, PO Box 442, St. Louis, MO 63166-0442, USA. E-mail: Subhayu.Bandyopadhyay@stls.frb.org. Lahiri: Southern Illinois University Carbondale, Carbondale, IL 62901-4515, USA. Tel: 618-452-9472; Fax 618-453-9472; E-mail: lahiri@siu.edu. Wall: Institute for the Study of Economics and the Environment, School of Business and Entrepreneurship, Lindenwood University, Saint Charles, MO 63301, USA. E-mail: HWall@lindenwood.edu.
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  • Howard J. Wall

    Corresponding author
    1. Institute for the Study of Economics and the Environment, School of Business and Entrepreneurship, Lindenwood University, USA
      Bandyopadhyay: Federal Reserve Bank of St. Louis, Research Division, PO Box 442, St. Louis, MO 63166-0442, USA. E-mail: Subhayu.Bandyopadhyay@stls.frb.org. Lahiri: Southern Illinois University Carbondale, Carbondale, IL 62901-4515, USA. Tel: 618-452-9472; Fax 618-453-9472; E-mail: lahiri@siu.edu. Wall: Institute for the Study of Economics and the Environment, School of Business and Entrepreneurship, Lindenwood University, Saint Charles, MO 63301, USA. E-mail: HWall@lindenwood.edu.
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    • The views expressed are those of the authors and do not necessarily represent official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.


Bandyopadhyay: Federal Reserve Bank of St. Louis, Research Division, PO Box 442, St. Louis, MO 63166-0442, USA. E-mail: Subhayu.Bandyopadhyay@stls.frb.org. Lahiri: Southern Illinois University Carbondale, Carbondale, IL 62901-4515, USA. Tel: 618-452-9472; Fax 618-453-9472; E-mail: lahiri@siu.edu. Wall: Institute for the Study of Economics and the Environment, School of Business and Entrepreneurship, Lindenwood University, Saint Charles, MO 63301, USA. E-mail: HWall@lindenwood.edu.

Abstract

This paper examines the effect of cross-border lobbying on domestic lobbying and on external tariffs in both Customs Union (CU) and Free Trade Area (FTA). We do so by developing a two-stage game which endogenizes the tariff formation function in a political economic model of the directly unproductive rent-seeking activities type. We find that cross-border lobbying un-ambiguously increases both domestic lobbying and the equilibrium common external tariffs in a CU. The same result also holds for FTA provided tariffs for the member governments are strategic complements. We also develop a specific oligopolistic model of FTA and show that tariffs are indeed strategic complements in such a model.

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