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(When) Does Tit-for-Tat Diplomay in Trade Policy Pay Off?

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Author Info

  • Dluhosch, Barbara

    () (Helmut Schmidt University, Hamburg)

  • Horgos, Daniel

    () (Helmut Schmidt University, Hamburg)

Abstract

In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of noncooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.

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Bibliographic Info

Paper provided by Helmut Schmidt University, Hamburg in its series Working Paper with number 116/2012.

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Length: 48 pages
Date of creation: 26 Mar 2012
Date of revision:
Handle: RePEc:ris:vhsuwp:2012_116

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Keywords: Int. Political Economy; Trade Policy Conflicts; Tit-for-Tat; WTO Dispute Settlement;

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  1. Kyle Bagwell & Robert W. Staiger, 2010. "The World Trade Organization: Theory and Practice," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 223-256, 09.
  2. Arvind Subramanian & Shang-Jin Wei, 2003. "The WTO Promotes Trade, Strongly But Unevenly," NBER Working Papers 10024, National Bureau of Economic Research, Inc.
  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. Keohane, Robert O., 1986. "Reciprocity in international relations," International Organization, Cambridge University Press, vol. 40(01), pages 1-27, December.
  5. Hungerford, Thomas L., 1991. "GATT: A cooperative equilibrium in a noncooperative trading regime?," Journal of International Economics, Elsevier, vol. 31(3-4), pages 357-369, November.
  6. Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages S179-204, January.
  7. Christopher S. P. Magee & Stephen P. Magee, 2008. "The United States is a Small Country in World Trade," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 990-1004, November.
  8. Ethier, Wilfred J., 2007. "The theory of trade policy and trade agreements: A critique," European Journal of Political Economy, Elsevier, vol. 23(3), pages 605-623, September.
  9. Bhagwati, Jagdish, 1990. "Departures from Multilateralism: Regionalism and Aggressive Unilateralism," Economic Journal, Royal Economic Society, vol. 100(403), pages 1304-17, December.
  10. 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.
  11. Martin, Alberto & Vergote, Wouter, 2008. "On the role of retaliation in trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 61-77, September.
  12. Pelc, Krzysztof J., 2010. "Constraining Coercion? Legitimacy and Its Role in U.S. Trade Policy, 1975–2000," International Organization, Cambridge University Press, vol. 64(01), pages 65-96, January.
  13. Rhodes, Carolyn, 1989. "Reciprocity in trade: the utility of a bargaining strategy," International Organization, Cambridge University Press, vol. 43(02), pages 273-299, March.
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