Do Terms-of-Trade Effects Matter for Trade Agreements? Evidence from WTO Countries
AbstractIn the literature on the economics of international trade institutions, a key question is whether or not terms-of-trade effects drive international trade agreements. Recent empirical work addressing terms-of-trade effects has been restricted to non-WTO countries or accession countries, which differ markedly from existing WTO members and account for only a tiny fraction of world trade. This paper investigates whether MFN tariffs set by existing WTO members in the Uruguay round are consistent with the terms-of-trade hypothesis. We present a model of multilateral trade negotia-tions featuring free riding on MFN that leads the resulting tariff schedule to display terms-of-trade effects. Specifically, the model predicts that the level of the importer’s tariff resulting from negotia-tions should be negatively related to the product of exporter concentration, as measured by a Her-findahl-Hirschman index (sum of squared export shares), and the importer’s market power, as measured by the inverse elasticity of export supply, on a product-by-product basis. We test this hy-pothesis using data on tariffs, trade and production across more than 30 WTO countries and find strong support. We estimate that the internalization of terms of trade effects through WTO negotia-tions has lowered the average tariff of these countries by about 20% compared to its non-cooperative level.
Download InfoIf 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.
Bibliographic InfoPaper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 293.
Date of creation: 31 Jul 2010
Date of revision:
Other versions of this item:
- 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.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
This paper has been announced in the following NEP Reports:
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.:
- 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.
- Rodney Ludema (Georgetown University) and Anna Maria Mayda (Georgetown University and CEPR), 2005.
"Do Countries Free Ride on MFN?,"
gueconwpa~05-05-13, Georgetown University, Department of Economics.
- Ludema, Rodney D & Mayda, Anna Maria, 2005. "Do Countries Free Ride on MFN?," CEPR Discussion Papers 5160, C.E.P.R. Discussion Papers.
- 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.
- Rodney Ludema and Ann Maria Mayda, 2008. "Do Countries Free Ride on MFN?," Working Papers gueconwpa~08-08-04, Georgetown University, Department of Economics.
- Andrew K. Rose, 2002.
"Do We Really Know that the WTO Increases Trade?,"
NBER Working Papers
9273, National Bureau of Economic Research, Inc.
- Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008.
"Does Regionalism Affect Trade Liberalization Towards Non-Members?,"
CEP Discussion Papers
dp0868, Centre for Economic Performance, LSE.
- Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization toward NonMembers?," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1531-1575, November.
- Estevadeordal, Antoni & Freund, Caroline & Ornelas, Emanuel, 2008. "Does regionalism affect trade liberalization toward non-members ?," Policy Research Working Paper Series 4751, The World Bank.
- Robert C. Feenstra, 1997. "U.S. Exports, 1972-1994: With State Exports and Other U.S. Data," NBER Working Papers 5990, National Bureau of Economic Research, Inc.
- Christian Broda & Joshua Greenfield & David Weinstein, 2006. "From Groundnuts to Globalization: A Structural Estimate of Trade and Growth," NBER Working Papers 12512, National Bureau of Economic Research, Inc.
- Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
- Grossman, Gene M & Helpman, Elhanan, 1995.
"Trade Wars and Trade Talks,"
Journal of Political Economy,
University of Chicago Press, vol. 103(4), pages 675-708, August.
- Gene M. Grossman & Elhanan Helpman, 1993. "Trade Wars and Trade Talks," NBER Working Papers 4280, National Bureau of Economic Research, Inc.
- Grossman, G.M. & Helpman, E., 1993. "Trade Wars and Trade Talks," Papers 1-93, Tel Aviv.
- Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
- Grossman, Gene M. & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Scholarly Articles 3450062, Harvard University Department of Economics.
- Grossman, G.M. & Helpman, E., 1992. "Trade Wars and Trade Talks," Papers 163, Princeton, Woodrow Wilson School - Public and International Affairs.
- 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.
- Horn, Henrik & Mavroidis, Petros C, 2001. "Economic and Legal Aspects of the Most Favoured Nation Clause," CEPR Discussion Papers 2859, C.E.P.R. Discussion Papers.
- Saggi, Kamal, 2009. "The MFN clause, welfare, and multilateral cooperation between countries of unequal size," Journal of Development Economics, Elsevier, vol. 88(1), pages 132-143, January.
- 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.
- 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.
- 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.
- Barbara Dluhosch & Daniel Horgos, 2013.
"(When) Does Tit-for-tat Diplomacy in Trade Policy Pay Off?,"
The World Economy,
Wiley Blackwell, vol. 36(2), pages 155-179, 02.
- Barbara Dluhosch & Daniel Horgos, 2012. "(When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off?," FIW Working Paper series 085, FIW.
- Dluhosch, Barbara & Horgos, Daniel, 2012. "(When) Does Tit-for-Tat Diplomay in Trade Policy Pay Off?," Working Paper 116/2012, Helmut Schmidt University, Hamburg.
- repec:ulb:ulbeco:2013/98544 is not listed on IDEAS
- Alfaro, Laura & Conconi, Paola & Fadinger, Harald & Newman, Andrew, 2010.
"Trade Policy and Firm Boundaries,"
CEPR Discussion Papers
7899, C.E.P.R. Discussion Papers.
- Andrew F. Newman & Laura Alfaro & Paola Conconi & Harald Fadinger, 2011. "Trade Policy and Firm Boundaries," Boston University - Department of Economics - Working Papers Series WP2011-035, Boston University - Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chiara Elli).
If references are entirely missing, you can add them using this form.