An Economic Theory of the GATT: A Generalization
AbstractBagwell and Staiger (1999) conclude that the reason for governments to enter trade negotiation is the terms-of-trade externality, which creates an inefficiency in unilateral trade policies. To address this conclusion, the authors consider that protection may be motivated by many other objectives than just unilateral attempts at terns-of-trade improvements, including the desire to: (1) increase incomes (or prevent trade-driven losses) in import- competing countries; (2) increase employment; (3) improve the balance of trade. It may or may not be sensible for countries to increase tariffs for any of these reasons, but they do. In each case, trade agreements may be appealing to governments as a way to prevent an inefficiency that arises from unilateral trade policies. The justification for the GATT is that it restrains unilateral protection, regardless of its political or economic motivation. Moreover, this conclusion holds even if each country has a different motive for protection.
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Bibliographic InfoPaper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 9909.
Date of creation: 1999
Date of revision:
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Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
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Web page: http://economics.uwo.ca/econref/WorkingPapers/departmentresearchreports.asp
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-11-28 (All new papers)
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- Kyle Bagwell & Robert W. Staiger, 1997.
"An Economic Theory of GATT,"
NBER Working Papers
6049, National Bureau of Economic Research, Inc.
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