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‘GATT-Think’ with Asymmetric Countries

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  • Paolo Epifani

    ()
    (CESPRI
    University of Parma.)

  • Juliette Vitaloni

    ()
    (CESPRI)

Abstract

We argue that, in the presence of asymmetric countries, a trade agreement that conforms to GATT’s reciprocity rule allows the (stronger) less trade dependent country to improve its welfare relative to both the free trade and the trade war. Conversely, the (weaker) more trade dependent country cannot reach the free trade welfare level under reciprocity, although its welfare improves relative to the trade war. Reciprocity is so unfavorable to the weaker country that it maybeworse o .under reciprocity than under the Nash bargaining solution, a 'power-based' approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger (1999, 2000)’s view of reciprocity as a rule that "serves to mitigate the influence of power asymmetries on negotiated outcomes".

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Bibliographic Info

Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 141.

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Length: 27 pages
Date of creation: Mar 2003
Date of revision: Mar 2003
Handle: RePEc:cri:cespri:wp141

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Keywords: Reciprocity; Trade negotiations; Trade dependence; Nash bargaining solution.;

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References

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  1. McLaren, John, 1997. "Size, Sunk Costs, and Judge Bowker's Objection to Free Trade," American Economic Review, American Economic Association, vol. 87(3), pages 400-420, June.
  2. Carlo Perroni & John Whalley, 2000. "The new regionalism: trade liberalization or insurance?," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 1-24, February.
  3. Michalopoulos, Constantine, 1999. "Trade policy and market access issues for developing countries : implications for the Millennium Round," Policy Research Working Paper Series 2214, The World Bank.
  4. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
  5. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
  6. Bond, Eric W & Park, Jee-Hyeong, 2002. "Gradualism in Trade Agreements with Asymmetric Countries," Review of Economic Studies, Wiley Blackwell, vol. 69(2), pages 379-406, April.
  7. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
  8. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  9. Richard E. Baldwin, 1997. "The Causes of Regionalism," The World Economy, Wiley Blackwell, vol. 20(7), pages 865-888, November.
  10. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
  11. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  12. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
  13. Kyle Bagwell & Robert W. Staiger, 1996. "Reciprocal Trade Liberalization," NBER Working Papers 5488, National Bureau of Economic Research, Inc.
  14. Paul Krugman, 1991. "The move toward free trade zones," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-58.
  15. Kennan, John & Riezman, Raymond, 1988. "Do Big Countries Win Tariff Wars?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February.
  16. Park, Jee-Hyeong, 2000. "International trade agreements between countries of asymmetric size," Journal of International Economics, Elsevier, vol. 50(2), pages 473-495, April.
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Cited by:
  1. Pascalis Raimondos-Møller & Alan D. Woodland, 2011. "Reciprocity, World Prices and Welfare," CESifo Working Paper Series 3607, CESifo Group Munich.

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