Advanced Search
MyIDEAS: Login

Do Countries Free Ride on MFN?

Contents:

Author Info

  • Rodney D. Ludema

    ()
    (Georgetown University)

  • Anna Maria Mayda

    ()
    (Georgetown University and Centro Studi Luca d\'Agliano)

Abstract

The Most-Favored Nation (MFN) clause has long been suspected of creating a free rider problem in multilateral trade negotiations. To address this issue, we model multilateral negotiations as a mechanism design problem with voluntary participation. We show that an optimal mechanism induces only the largest exporters to participate in negotiations over any product, thus providing a rationalization for the Principal supplier rule. We also show that, through this channel, equilibrium tariffs vary according to the Herfindahl-Hirschman index of export shares: higher concentration in a sector reduces free riding and thus causes a lower tariff. Estimation of our model using sector-level tariff data for the U.S. provides strong support for this relationship.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.dagliano.unimi.it/media/wp2008_254.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 254.

as in new window
Length: 48
Date of creation: 30 Jun 2008
Date of revision:
Handle: RePEc:csl:devewp:254

Contact details of provider:
Postal: Via Conservatorio 7 - 20122 Milano
Phone: +39 02 503 16486
Fax: +39 02 503 16475
Web page: http://www.dagliano.unimi.it/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2003. "The Response of the Informal Sector to Trade Liberalization," CEPR Discussion Papers 3874, C.E.P.R. Discussion Papers.
  2. Bagwell,K. & Staiger,R.W., 2004. "Backward stealing and forward manipulation in the WTO," Working papers 9, Wisconsin Madison - Social Systems.
  3. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  4. Kishore Gawande & Pravin Krishna & Michael J. Robbins, 2004. "Foreign Lobbies and US Trade Policy," NBER Working Papers 10205, National Bureau of Economic Research, Inc.
  5. Saijo, Tatsuyoshi & Yamato, Takehiko, 1999. "A Voluntary Participation Game with a Non-excludable Public Good," Journal of Economic Theory, Elsevier, vol. 84(2), pages 227-242, February.
  6. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  7. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  8. Bombardini, Matilde, 2008. "Firm heterogeneity and lobby participation," Journal of International Economics, Elsevier, vol. 75(2), pages 329-348, July.
  9. Eric W. Bond & Stephen Ching & Edwin L.-C. Lai, 2003. "GAME-THEORETIC ANALYSIS OF CHINA's WTO ACCESSION," Pacific Economic Review, Wiley Blackwell, vol. 8(2), pages 117-125, 06.
  10. Saggi, Kamal, 2004. "Tariffs and the most favored nation clause," Journal of International Economics, Elsevier, vol. 63(2), pages 341-368, July.
  11. Bruce A. Blonigen & Chad P. Bown, 2001. "Antidumping and Retaliation Threats," NBER Working Papers 8576, National Bureau of Economic Research, Inc.
  12. John H. Jackson, 1997. "The World Trading System, 2nd Edition: Law and Policy of International Economic Relations," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262600277, January.
  13. Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
  14. Rodney Ludema and Ann Maria Mayda, 2008. "Do Countries Free Ride on MFN?," Working Papers gueconwpa~08-08-04, Georgetown University, Department of Economics.
  15. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  16. Harry G. Johnson, 1965. "An Economic Theory of Protectionism, Tariff Bargaining, and the Formation of Customs Unions," Journal of Political Economy, University of Chicago Press, vol. 73, pages 256.
  17. Karacaovali, Baybars & Limão, Nuno, 2005. "The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the European Union," CEPR Discussion Papers 4973, C.E.P.R. Discussion Papers.
  18. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
  19. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
  20. Cebi, Pinar & Ludema, Rodney, 2002. "The Rise and Fall of the Most-Favored-Nation Clause," Working Papers 15853, United States International Trade Commission, Office of Economics.
  21. Palfrey, Thomas R. & Rosenthal, Howard, 1984. "Participation and the provision of discrete public goods: a strategic analysis," Journal of Public Economics, Elsevier, vol. 24(2), pages 171-193, July.
  22. McCalman, Phillip, 2002. "Multi-lateral trade negotiations and the Most Favored Nation clause," Journal of International Economics, Elsevier, vol. 57(1), pages 151-176, June.
  23. Choi, Jay Pil, 1995. "Optimal tariffs and the choice of technology Discriminatory tariffs vs. the 'Most Favored Nation' clause," Journal of International Economics, Elsevier, vol. 38(1-2), pages 143-160, February.
  24. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June.
  25. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
  26. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, January.
  27. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
  28. Ederington, Josh & McCalman, Phillip, 2003. "Discriminatory tariffs and international negotiations," Journal of International Economics, Elsevier, vol. 61(2), pages 397-424, December.
  29. Nuno Lim�o, 2007. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 821-855.
  30. Rodney D. Ludema, 1991. "International Trade Bargaining And The Most-Favored-Nation Clause," Economics and Politics, Wiley Blackwell, vol. 3(1), pages 1-20, 03.
  31. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
  32. Nuno Limão, 2002. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Bloc for Multilateral Liberalization?," International Trade 0206001, EconWPA.
  33. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-65, December.
  34. Bown, Chad P., 2004. "Trade disputes and the implementation of protection under the GATT: an empirical assessment," Journal of International Economics, Elsevier, vol. 62(2), pages 263-294, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
  2. Rodney D. Ludema & Anna Maria Mayda, 2008. "Do Countries Free Ride on MFN?," Development Working Papers 254, Centro Studi Luca d\'Agliano, University of Milano.
  3. Ludema, Rodney D & Mayda, Anna Maria, 2010. "Do terms-of-trade effects matter for trade agreements? Evidence from WTO countries," CEPR Discussion Papers 7695, C.E.P.R. Discussion Papers.
  4. Limão, Nuno & Tovar, Patricia, 2011. "Policy choice: Theory and evidence from commitment via international trade agreements," Journal of International Economics, Elsevier, vol. 85(2), pages 186-205.
  5. Kamal Saggi & Nuno Limao, 2011. "Size Inequality, Coordination Externalities and International Trade Agreements," Vanderbilt University Department of Economics Working Papers 1115, Vanderbilt University Department of Economics.
  6. Ludema, Rodney D & Mayda, Anna Maria & Mishra, Prachi, 2010. "Protection for Free? The Political Economy of U.S. Tariff Suspensions," CEPR Discussion Papers 7926, C.E.P.R. Discussion Papers.
  7. Spearot, Alan C., 2013. "Variable demand elasticities and tariff liberalization," Journal of International Economics, Elsevier, vol. 89(1), pages 26-41.
  8. repec:van:wpaper:13-00002 is not listed on IDEAS
  9. Kyle Bagwell & Robert W. Staiger, 2009. "The WTO: Theory and Practice," NBER Working Papers 15445, National Bureau of Economic Research, Inc.
  10. Joanne Gowa & Raymond Hicks, 2012. "The most-favored nation rule in principle and practice: Discrimination in the GATT," The Review of International Organizations, Springer, vol. 7(3), pages 247-266, September.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:csl:devewp:254. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chiara Elli).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.