No: ERAD-98-03 Author:
Marcelo Olarreaga
World Trade Organization and CEPR
Manuscript date:
June 1998
Abstract Back
to top
This paper argues that interests of nationals and
owners of home-based foreign capital in the formation of a Trade Agreements (TA) are not
antagonistic, except under rather particular assumptions on initial tariffs among
potential members. Further, if initial tariffs are endogenously determined through an
industry-lobbying process, then TA that would have been immiserising in the absence of
Foreign Direct Investment (FDI), may be welfare-enhancing in the presence of foreign-owned
firms. The rationale is linked to the effect that the entry of FDI has on the pre-TA
tariff, through contributions to the incumbent government. These results may help explain
recent integration programs between developed and developing countries.
Keywords Back to top
Trade Agreement; Foreign Direct; Political
Economy.
JEL codes:
[F12], [F15], [F23]
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