Regionalism and Incentives for Multilateralism

Regionalism and Incentives for Multilateralism

The paper studies the effects of regional integration on the incentives of members and non-members to undertake multilateral trade liberalization. Using a three- country political economy model with imperfect competion, it shows how regionalism can undermine support for multilateralism. Discriminatory trade policies alter the balance of gains and losses that members and non-members experience from multilateral liberalization. As the degree of preference within the PTA increases, the member countries` support for large multilateral tariff cuts, as well as the excluded countries` support for small multilateral trade liberalization, declines.(JEL Classifications: F02, F12, F15, F13)