The rise of offshoring of intermediate inputs raises important questions for commercial policy. Do the distinguishing features of offshoring introduce novel reasons for trade policy intervention? Does offshoring create new problems of global policy cooperation whose solutions require international agreements with novel features? Can trade agreements that are designed to address problems that arise when trade predominantly takes the form of the exchange of final goods be expected to perform in a world where offshoring is prevalent? In this paper we provide answers to these questions, and thereby initiate the study of trade agreements in the presence of offshoring. We do so by deriving the Nash and internationally efficient trade policy choices of governments in an environment in which some trade flows involve the exchange of customized inputs, contracts governing these transactions are incomplete, and the matching between final-good producers and input suppliers may involve search frictions. By characterizing the differences between Nash and internationally efficient policies in this environment, and by comparing these differences to those that would arise in the absence of offshoring of customized inputs, we seek to understand the implications of offshoring for the role of trade agreements. Our findings indicate that the rise of offshoring is likely to complicate the task of trade agreements, because in the presence of offshoring, (i) the mechanism by which countries can shift the costs of intervention on to their trading partners is more complicated and extends to a wider set of policies than is the case when offshoring is not present, and (ii) because the underlying problem that a trade agreement must address in the presence of offshoring varies with the political preferences of member governments. As a consequence, the increasing prevalence of offshoring is likely to make it increasingly difficult for governments to rely on simple and general rules -- such as reciprocity and non-discrimination -- to help them solve their trade-related problems.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14285.
Length: Date of creation: Aug 2008 Date of revision: Handle: RePEc:nbr:nberwo:14285
Note: ITI Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
Find related papers by JEL classification: D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations F5 - International Economics - - International Relations and International Political Economy
This paper has been announced in the following NEP Reports:
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.:
Stephanie Rosenkranz & Patrick W. Schmitz, 2007.
"Can Coasean Bargaining Justify Pigouvian Taxation?,"
Economica,
London School of Economics and Political Science, vol. 74(296), pages 573-585, November.
[Downloadable!] (restricted)
Other versions:
Grossman, Gene M & Helpman, Elhanan, 1994.
"Protection for Sale,"
American Economic Review,
American Economic Association, vol. 84(4), pages 833-50, September.
[Downloadable!] (restricted)
Other versions:
Gene M. Grossman & Elhanan Helpman, 1992.
"Protection For Sale,"
NBER Working Papers
4149, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Pol Antràs & Esteban Rossi-Hansberg, 2008.
"Organizations and Trade,"
NBER Working Papers
14262, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Kyle Bagwell & Robert W. Staiger, 1999.
"An Economic Theory of GATT,"
American Economic Review,
American Economic Association, vol. 89(1), pages 215-248, March.
[Downloadable!] (restricted)
Other versions:
Cited by: (explanations, 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.)