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Cross-border Lobbying in Preferential Trading Agreements: Implications for External Tariffs and Welfare
Article first published online: 19 OCT 2012
© 2012 Blackwell Publishing Ltd
Review of International Economics
Volume 20, Issue 5, pages 1034–1045, November 2012
How to Cite
Bandyopadhyay, S., Lahiri, S. and Wall, H. J. (2012), Cross-border Lobbying in Preferential Trading Agreements: Implications for External Tariffs and Welfare. Review of International Economics, 20: 1034–1045. doi: 10.1111/roie.12011
- Issue published online: 19 OCT 2012
- Article first published online: 19 OCT 2012
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.