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Research Programmes | Trade:

Trade Policy

Overview

Globalisation is not an inevitable process: during the Great Depression, after decades of trade liberalisation, nations descended into rounds of tariff escalation. Policy is therefore important not only in shaping the response to globalisation but also in influencing its future pace and direction. We seek to understand the causes and consequences of trade policy, including the role of political economy and prospects for future developments. The world has experienced a marked tendency toward international integration since the early 1990s, the main vehicle being the formation of regional trade agreements (RTAs). Potential gains from these agreements stem from resources flowing to more productive uses, lower consumer prices and increased foreign competition. However, not all types of liberalisation guarantee gains from trade. One key issue is the impact of liberalisation in the presence of existing market imperfections, which might be exacerbated. Another issue is the potential for trade diversion, or whether production shifts from efficient external suppliers to inefficient members.

Research at the CEP has examined international trade as a policy tool to address the misallocation of resources created by imperfect markets (Discussion Paper No 1130). In such markets, some firms over-produce while others under-produce, and opening up to intense foreign competition can correct these misallocations. When world markets are less competitive, gains from trade may still exist, but trade may need to be supplemented by domestic policies to bring gains.

CEP research has also studied how the ASEAN Free Trade Agreement has affected trade with non-members and external tariffs "facing non-members" (Discussion Paper No 930 published in Costs and Benefits of Economics Integration in Asia). There is no evidence that preferential liberalisation has led to lower import growth from non-members; moreover, preferential liberalisation within ASEAN also promotes external tariff liberalisation. Similar effects are observed in Latin America (Discussion Paper No 868, published in the Quarterly Journal of Economics).

Multilateral liberalisation also shapes future preferential liberalisation. CEP research finds that the goods whose imports the United States negotiated the largest MFN tariff reductions during the Uruguay Round of the GATT (1986-1994) were also the goods introduced more frequently in subsequent RTAs (Discussion Paper No 973). Hence, successful multilateralism seems at least partly responsible for the current wave of regionalism.

News Coverage

The CEP's research is often featured in international news coverage and is influential in informing public debate. Some recent coverage discussing work of the Trade Policy group include:

Related Papers

These and related topics have been Studies by several recent CEP articles:
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CEP Discussion Paper
Capital Controls or Exchange Rate Policy? A Pecuniary Externality Perspective Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci and Eric R. Young August 2012
Paper No' CEPDP1160:
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JEL Classification: E52; F37; F41


Tags: capital controls; exchange rate policy; financial frictions; financial crises; financial stability; optimal taxation; prudential policies; planning problem

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CEP Discussion Paper
The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition Swati Dhingra and John Morrow February 2012
Paper No' CEPDP1130:
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JEL Classification: F1; L1; D6


Tags: selection; monopolistic competition; efficiency; productivity; social welfare; demand elasticity

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CEP Discussion Paper
Preferential Trade Agreements and the Labor Market Emanuel Ornelas
January 2012
Paper No' CEPDP1117:
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JEL Classification: F16; F15; F13


Tags: trade liberalization; unemployment; trade diversion; labor frictions

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CEP Discussion Paper
Is the WTO Article XXIV Bad? Monika Mrázová, David Vines and Ben Zissimos
November 2010
Paper No' CEPDP1021:
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JEL Classification: F02; F13; F15


Tags: coalition formation game; customs union; protection; trade block; trade liberalization

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CEP Discussion Paper
Sequential Exporting Facundo Albornoz, Hector Calvo-Pardo, Gregory Corcos and Emanuel Ornelas
March 2010
Paper No' CEPDP0974:
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JEL Classification: F10; D21; F13


Tags: export dynamics; trade liberalization; experimentation; uncertainty

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CEP Discussion Paper
Regional Trade Agreements Caroline Freund and Emanuel Ornelas
December 2009
Paper No' CEPDP0961:
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JEL Classification: F13; F15


Tags: regionalism; trade creation; trade diversion; external tariffs; trade liberalization

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CEP Discussion Paper
The ASEAN Free Trade Agreement: Impact on Trade Flows and External Trade Barriers Hector Calvo-Pardo, Caroline Freund and Emanuel Ornelas May 2009
Paper No' CEPDP0930:
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JEL Classification: F13; F15


Tags: regionalism; external tariffs; trade liberalization; preferential trade agreements; asia

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CEP Discussion Paper
International Trade Integration: A Disaggregated Approach Natalie Chen and Dennis Novy
January 2009
Paper No' CEPDP0908:
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JEL Classification: F10; F15


Tags: trade integration; gravity; trade costs; multilateral resistance; industries; disaggregation; european union

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CEP Discussion Paper
Protection and International Sourcing Emanuel Ornelas and John L. Turner
December 2008
Paper No' CEPDP0900:
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JEL Classification: F13; L23; D23


Tags: international trade; tariffs; hold-up problem; sourcing; organizational form