Multilateral Trade Liberalization, Political Disintegration and the Choice of Free Trade Agreements Versus Customs Unions

28 Pages Posted: 25 Jul 2000

See all articles by Maurice Schiff

Maurice Schiff

Fellow, Institute for the Study of Labor (IZA)

Date Written: May 23, 2000

Abstract

Two theories are combined to explain why free trade areas (FTAs) have proliferated more than customs unions (CUs) have, and why FTAs are found more in North-South agreements and CUs in South-South agreements.

Schiff combines two theories - one about how multilateral trade liberalization affects regional integration, the other about how it affects political disintegration - to explain why the ratio of free trade areas to customs unions has increased over time, and why it is larger in North-South than in South-South agreements.

Ethier (1998, 1999) argues that multilateral trade liberalization led to the recent wave of regional integration arrangements.

Alesina and others (1997), in discussing the number and size of countries, argue that multilateral trade liberalization leads to political disintegration, with an increase in the number of countries.

Combining the two arguments, Schiff hypothesizes that as multilateral trade liberalization proceeds and the number of regional integration arrangements increases, the ratio of free trade areas to customs unions also increases. The same arguments are also used to show why that ratio is larger in North-South than in South-South agreements. The data, which show that ratio increasing in the 1990s and larger for North-South agreements, are consistent with the hypotheses.

Finally, a number of voluntary and involuntary customs unions are examined where weaker members lose and conflict does or does not take place, and where free trade agreements are superior.

This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to study regional integration. The author may be contacted at mschiff@worldbank.org.

JEL Classification: F13

Suggested Citation

Schiff, Maurice W., Multilateral Trade Liberalization, Political Disintegration and the Choice of Free Trade Agreements Versus Customs Unions (May 23, 2000). Available at SSRN: https://ssrn.com/abstract=229607

Maurice W. Schiff (Contact Author)

Fellow, Institute for the Study of Labor (IZA) ( email )

Bonn
Germany

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