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Who Makes the Rules of Globalization

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  • Alan V. Deardorff

    (University of Michingan)

Abstract

In this paper I argue that profit maximizing firms, even though they contribute to social welfare when they compete in the market, may not do so when they influence the political process. In particular, I suggest, through several examples from both the real world and from economic theory, that corporations have played a significant role in the formulation of the rules of the international trading system. They did this in the formation of the WTO, where they were responsible for the expansion to cover both intellectual property and services. And they do this in preferential trading arrangements such as the NAFTA, where they inserted the notorious Chapter 11 and specified rules of origin for automotive products. All of this is quite consistent with economic theory, including the literature on the political economy of trade policy. I also use a simple duopoly model to illustrate a domestic firm’s interest in setting rules of origin. The corporate influence on rules need not be bad, but there is no reason why it should be good either, as these examples illustrate.

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File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers501-525/r517.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 517.

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Length: 25 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:mie:wpaper:517

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Keywords: Political economy of trade; Trade institutions;

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References

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  1. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 166, Princeton, Woodrow Wilson School - Public and International Affairs.
  2. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-44, Fall.
  3. repec:fth:michin:259 is not listed on IDEAS
  4. Deardorff, Alan V, 1992. "Welfare Effects of Global Patent Protection," Economica, London School of Economics and Political Science, vol. 59(233), pages 35-51, February.
  5. Alan V. Deardorff, 2003. "What Might Globalisation's Critics Believe?," The World Economy, Wiley Blackwell, vol. 26(5), pages 639-658, 05.
  6. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  7. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  8. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
  9. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  10. Deardorff, A.V. & Hall, R., 1997. "Explaining the Role of Interest Groups in United States Trade Policy," Working Papers 415, Research Seminar in International Economics, University of Michigan.
  11. repec:fth:michin:415 is not listed on IDEAS
  12. Alan V. Deardorff, 1990. "Should Patent Protection Be Extended to All Developing Countries?," The World Economy, Wiley Blackwell, vol. 13(4), pages 497-508, December.
  13. Pravin Krishna, . "Regionalism and Multilaterialism: A Political Economy Approach," Working Papers 96-5, Brown University, Department of Economics.
  14. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
  15. André Sapir & Richard Baldwin & Daniel Cohen & Anthony Venables, 1999. "Market integration, regionalism and the global economy," ULB Institutional Repository 2013/8074, ULB -- Universite Libre de Bruxelles.
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Cited by:
  1. Roberta Benini & Michael Plummer, 2008. "Regionalism and multilateralism: crucial issues in the debate on RTAs," Economic Change and Restructuring, Springer, vol. 41(4), pages 267-287, December.

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