The Effect of Preferential Trade Agreement: The Case of Brazil and the U.S.

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Abstract/Contents

Abstract: Preferential trade agreements (PTAs) have become a popular tool for regional economic cooperation. While the WTO system is hard to coordinate between all of its 153 member countries, a PTA can function as the alternative policy that involves only a selected number of countries. Despite its popularity, however, many economists are still skeptical of the effectiveness of PTAs. Some argue that PTAs might cause member countries to charge higher tariffs on non-members. Bagwell and Staiger (1998) propose that PTAs can help liberalize multilateral trade precisely when multilateral cooperation in the region is very low with the effects of a Custom Union (CU) less pronounced than that of a Free-Trade Agreement (FTA) in this regard. This paper provides an empirical test of their hypothesis by using Brazil and the U.S. data to test for the effect of a CU and a FTA, respectively. The study finds that the results from both countries strongly support Bagwell and Staiger‟s hypothesis. The results suggest that the less constrained each country is from binding tariff (i.e. when the multilateral cooperation in the region is low), the more it decreases applied MFN external tariffs over time. Moreover, a country decreases its MFN tariffs significantly more if its products are under a FTA but not as significant under a CU.

Type of resource	text
Date created	May 2011

Author	Punyakumpol, Chanya
Primary advisor	Staiger, Robert
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	preferential trade agreement
Subject	regionalism
Subject	external tariffs
Subject	trade liberalization
Genre	Thesis

Location	https://purl.stanford.edu/zm458kw7502

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Preferred Citation: Punyakumpol, Chanyat. (2011). The Effect of Preferential Trade Agreement: The Case of Brazil and the U.S. Stanford Digital Repository. Available at: https://purl.stanford.edu/zm458kw7502

Stanford University, Department of Economics, Honors Theses

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