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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Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number
141.
Length: 27 pages Date of creation: Mar 2003 Date of revision:
Mar 2003 Handle: RePEc:cri:cespri:wp141
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Find related papers by JEL classification: F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations F15 - International Economics - - Trade - - - Economic Integration
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Kyle Bagwell & Robert W. Staiger, 1996.
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Kyle Bagwell & Robert W. Staiger, 2002.
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Kyle Bagwell & Robert W. Staiger, 1999.
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Other versions:
Kennan, John & Riezman, Raymond, 1988.
"Do Big Countries Win Tariff Wars?,"
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Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February.
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