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The theory of trade policy and trade agreements: A critique

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  • Ethier, Wilfred J.

Abstract

During the past half century, multilateral trade liberalization has reduced tariffs to historically low levels. The Received Theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, offers an explanation that has become the conventional wisdom among international trade theorists. But it displays two puzzles that cast doubt on its practical relevance: the Terms-of-Trade Puzzle and the Anti-Trade-Bias Puzzle. This paper examines the consistency of the implications of the Received Theory with actual trade policy. The basic conclusion is that the theory is inconsistent with reality. Furthermore, it is the role of terms-of-trade externalities — the central component of the Received Theory — that is the sole cause of this inconsistency.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 23 (2007)
Issue (Month): 3 (September)
Pages: 605-623

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Handle: RePEc:eee:poleco:v:23:y:2007:i:3:p:605-623

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Web page: http://www.elsevier.com/locate/inca/505544

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Citations

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Cited by:
  1. Monika Mrazova, 2009. "Trade negotiations when market access matters," Economics Series Working Papers 447, University of Oxford, Department of Economics.
  2. Wolf-Heimo Grieben & Fuat Sener, 2009. "Labor Unions, Globalization, and Mercantilism," CESifo Working Paper Series 2889, CESifo Group Munich.
  3. Barbara Dluhosch & Daniel Horgos, 2012. "(When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off?," FIW Working Paper series 085, FIW.
  4. Xenia Matschke, 2005. "Costly Revenue-Raising and the Case for Favoring Import-Competing Industries," Working papers 2005-28, University of Connecticut, Department of Economics, revised Apr 2007.
  5. Persson, Lars, 2012. "Environmental policy and lobbying in small open economies," Resource and Energy Economics, Elsevier, vol. 34(1), pages 24-35.
  6. Francois, Joseph & Hoekman, Bernard, 2009. "Services Trade and Policy," CEPR Discussion Papers 7616, C.E.P.R. Discussion Papers.
  7. Fredriksson, Per G. & Matschke, Xenia & Minier, Jenny, 2010. "Environmental policy in majoritarian systems," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 177-191, March.
  8. Rolf J. Langhammer, 2010. "Unordnung in der internationalen Handelsordnung: Befunde, Gründe, Auswirkungen und Therapien," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(1), pages 75-98, 02.
  9. Wilfred J. Ethier, 2013. "The Trade Agreement Embarrassment, Second Version," PIER Working Paper Archive 13-049, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 02 Sep 2013.

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