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Trade Agreements Based on Political Externalities, Second Version

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  • Wilfred J. Ethier

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

During the past half century, multilateral trade liberalization has reduced tariffs to historically low levels. The Received Theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, offers an explanation that has become the conventional wisdom among international trade theorists. But this explanation displays two puzzles that render it inconsistent with actual trade policy and actual trade agreements. This paper introduces inter-governmental political externalities into a model with terms-of-trade externalities. It delivers results consistent with what we actually observe, and thus resolves the puzzles, if and only if political externalities dominate terms-of-trade externalities.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 03-035.

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Length: 21 pages
Date of creation: 23 Nov 2002
Date of revision: 30 Nov 2003
Handle: RePEc:pen:papers:03-035

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Web page: http://economics.sas.upenn.edu/pier
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Keywords: Political externalities; trade agreements; reciprocity; the Received Theory; the Terms-of-Trade Puzzle; the Anti-Trade-Bias Puzzle;

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References

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  1. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers, Tel Aviv 14-93, Tel Aviv.
  2. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262524341, December.
  3. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers, Tel Aviv 21-92, Tel Aviv.
  4. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  5. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 215-248, March.
  6. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  7. Hillman, Arye L, 1990. " Protectionist Policies as the Regulation of International Industry," Public Choice, Springer, Springer, vol. 67(2), pages 101-10, November.
  8. Wilfred J. Ethier, 2004. "Political Externalities, Nondiscrimination, and a Multilateral World," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 303-320, 08.
  9. Arye L. Hillman & Ngo Van Long & Peter Moser, 1995. "Modelling Reciprocal Trade Liberalization: The Political-economy and National-welfare Perspectives," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 131(III), pages 503-515, September.
  10. Levy, Philip I., 1999. "Lobbying and international cooperation in tariff setting," Journal of International Economics, Elsevier, Elsevier, vol. 47(2), pages 345-370, April.
  11. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, American Economic Association, vol. 72(5), pages 1180-87, December.
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Cited by:
  1. Wilfred J. Ethier, 2003. "TRIPS, externalities, trade agreements, hostages," PIER Working Paper Archive 03-034, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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