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Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete?

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  • Emily Blanchard

Abstract

This paper demonstrates that international ownership can mitigate the terms of trade externalities that lead large countries to set inefficiently high tariffs, and may thereby substitute for negotiated tariff liberalization in eliminating the strategic manipulation of world prices. The policy prediction is unclear, however, since international cross-ownership also introduces an internal cost-shifting externality that can drive investment-host countries to expand local market access beyond efficient levels in an effort to extract rents from foreign investors. An immediate implication is that simply making large countries “act small” or completely diversify their global investment portfolios to neutralize traditionally understood terms of trade cost-shifting motives cannot ensure efficient trade policy regimes in an environment with international investment. At the same time, a modified version of the principle of reciprocity does continue to serve as an important guide to efficiency by balancing countries' external and internal pecuniary externalities.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1735.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1735

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Citations

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Cited by:
  1. Emily Blanchard & Xenia Matschke, 2010. "U.S. Multinationals and Preferential Market Access," Research Papers in Economics 2010-08, University of Trier, Department of Economics.
  2. Chad P. Bown, 2011. "Taking Stock of Antidumping, Safeguards and Countervailing Duties, 1990–2009," The World Economy, Wiley Blackwell, vol. 34(12), pages 1955-1998, December.
  3. Bernard Hoekman, 2008. "The General Agreement on Trade in Services: Doomed to Fail? Does it Matter?," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 295-318, December.
  4. Pascalis Raimondos-Møller & Alan D. Woodland, 2011. "Reciprocity, World Prices and Welfare," CESifo Working Paper Series 3607, CESifo Group Munich.
  5. Matthew T Cole & Ronald B Davies, 2009. "Optimal Tariffs, Tariff Jumping, and Heterogeneous Firms," Working Papers 200919, School Of Economics, University College Dublin.

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