Cross-Border Lobbying in Preferential Trading Agreements: Implications for External Tariffs
Federal Reserve Bank of St. Louis Working Paper 2009-041A
26 Pages Posted: 25 Aug 2009
Date Written: August 24, 2009
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 unambiguously 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.
Keywords: free trade area, customs union, preferential trading agreements, domestic lobbying, cross-border lobbying, external tariffs
JEL Classification: F13
Suggested Citation: Suggested Citation