(When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off?
AbstractIn 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 non- cooperative 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by FIW in its series FIW Working Paper series with number 085.
Date of creation: May 2012
Date of revision:
Contact details of provider:
Postal: FIW Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna
Other versions of this item:
- Barbara Dluhosch & Daniel Horgos, 2013. "(When) Does Tit-for-tat Diplomacy in Trade Policy Pay Off?," The World Economy, Wiley Blackwell, vol. 36(2), pages 155-179, 02.
- Dluhosch, Barbara & Horgos, Daniel, 2012. "(When) Does Tit-for-Tat Diplomay in Trade Policy Pay Off?," Working Paper 116/2012, Helmut Schmidt University, Hamburg.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-INT-2012-05-22 (International Trade)
- NEP-POL-2012-05-22 (Positive Political Economics)
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.:
- Limão, Nuno & Saggi, Kamal, 2006.
"Tariff Retaliation versus Financial Compensation in the Enforcement of International Trade Agreements,"
CEPR Discussion Papers
5560, C.E.P.R. Discussion Papers.
- Limão, Nuno & Saggi, Kamal, 2008. "Tariff retaliation versus financial compensation in the enforcement of international trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 48-60, September.
- Limao, Nuno & Saggi, Kamal, 2006. "Tariff retaliation versus financial compensation in the enforcement of international trade agreements," Policy Research Working Paper Series 3873, The World Bank.
- 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.
- 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.
- Rodney D. Ludema & Anna Maria Mayda, 2010. "Do Terms-of-Trade Effects Matter for Trade Agreements? Evidence from WTO Countries," Development Working Papers 293, Centro Studi Luca d\'Agliano, University of Milano.
- 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.
- Rose, Andrew K, 2002.
"Do We Really Know that the WTO Increases Trade?,"
CEPR Discussion Papers
3538, C.E.P.R. Discussion Papers.
- Arvind Subramanian & Shang-Jin Wei, 2003.
"The WTO Promotes Trade, Strongly But Unevenly,"
NBER Working Papers
10024, National Bureau of Economic Research, Inc.
- Bowen, T. Renee, 2010. "Limits of the WTO as a Self-Enforcing Institution," Research Papers 2071, Stanford University, Graduate School of Business.
- 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.
- MARTIN, Alberto & VERGOTE, Wouter, 2007.
"On the role of retaliation in trade agreements,"
CORE Discussion Papers
2007089, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Alberto Martin & Wouter Vergote, 2005. "On the role of retaliation in trade agreements," Economics Working Papers 914, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2008.
- MARTIN, Alberto & VERGOTE, Wouter, . "On the role of retaliation in trade agreements," CORE Discussion Papers RP -2037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Keohane, Robert O., 1986. "Reciprocity in international relations," International Organization, Cambridge University Press, vol. 40(01), pages 1-27, December.
- 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.
- Rhodes, Carolyn, 1989. "Reciprocity in trade: the utility of a bargaining strategy," International Organization, Cambridge University Press, vol. 43(02), pages 273-299, March.
- Bhagwati, Jagdish, 1990. "Departures from Multilateralism: Regionalism and Aggressive Unilateralism," Economic Journal, Royal Economic Society, vol. 100(403), pages 1304-17, December.
- 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.
- Wilfred J. Ethier, 2002.
"The Theory of Trade Policy and Trade Agreements: A Critique,"
PIER Working Paper Archive
06-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 05 Jun 2006.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.