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What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization

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  • Kyle Bagwell
  • Robert W. Staiger

Abstract

According to the terms-of-trade theory, governments use trade agreements to escape from a terms-of-trade-driven prisoner's dilemma. We use the terms-of-trade theory to develop a relationship that predicts negotiated tariff levels on the basis of pre-negotiation data: tariffs, import volumes and prices, and trade elasticities. We then confront this predicted relationship with data on the outcomes of tariff negotiations associated with the accession of new members to the World Trade Organization. We find strong and robust support for the central predictions of the terms-of-trade theory in the observed pattern of negotiated tariff cuts. (JEL F11, F13)

Suggested Citation

  • Kyle Bagwell & Robert W. Staiger, 2011. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," American Economic Review, American Economic Association, vol. 101(4), pages 1238-1273, June.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:4:p:1238-73
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    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F1 - International Economics - - Trade
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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