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Political Externalities, Nondiscrimination, and a Multilateral World

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  • Wilfred J. Ethier

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. But it is dramatically inconsistent with actual trade agreements. This paper offers an alternative explanation, based on intergovernmental political externalities, consistent with what we actually observe. With remarkably little necessary formal structure-in particular, no formal bargaining model-this framework (chosen to parallel actual experience) gives an immediate and transparent role to the basic characteristics of contemporary trade agreements: gradual liberalization, reciprocity, nondiscrimination, and multilateralism. Copyright Blackwell Publishing Ltd 2004.

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  • Wilfred J. Ethier, 2004. "Political Externalities, Nondiscrimination, and a Multilateral World," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 303-320, August.
  • Handle: RePEc:bla:reviec:v:12:y:2004:i:3:p:303-320
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    Cited by:

    1. repec:mbr:jmonec:v:8:y:2013:i:2:p:67-102 is not listed on IDEAS
    2. Hideo Konishi & Carsten Kowalczyk & Tomas Sjostrom, 2003. "Free Trade, Customs Unions, and Transfers," Boston College Working Papers in Economics 568, Boston College Department of Economics.
    3. Pol Antràs & Robert W. Staiger, 2012. "Offshoring and the Role of Trade Agreements," American Economic Review, American Economic Association, vol. 102(7), pages 3140-3183, December.
    4. Wolf-Heimo Grieben & Fuat Sener, 2009. "Labor Unions, Globalization, and Mercantilism," CESifo Working Paper Series 2889, CESifo Group Munich.
    5. Bown, Chad P. & Crowley, Meredith A., 2007. "Trade deflection and trade depression," Journal of International Economics, Elsevier, vol. 72(1), pages 176-201, May.
    6. Monika Mrazova, 2009. "Trade negotiations when market access matters," Economics Series Working Papers 447, University of Oxford, Department of Economics.
    7. Rolf J. Langhammer, 2010. "Unordnung in der internationalen Handelsordnung: Befunde, Gründe, Auswirkungen und Therapien," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(1), pages 75-98, February.
    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. Henrik Horn & Petros C. Mavroidis, 2014. "Multilateral environmental agreements in the WTO: Silence speaks volumes," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 147-166, March.
    10. Keck, Alexander & Schropp, Simon, 2007. "Indisputably essential: The economics of dispute settlement institutions in trade agreements," WTO Staff Working Papers ERSD-2007-02, World Trade Organization (WTO), Economic Research and Statistics Division.
    11. Sokolovska, Olena & Sokolovskyi, Dmytro, 2016. "Optimization of government trade behavior and its implication for small developing economy (the case of Ukraine)," MPRA Paper 71983, University Library of Munich, Germany.
    12. Wilfred J. Ethier, 2013. "The Trade Agreement Embarrassment, Second Version," PIER Working Paper Archive 13-049, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 02 Sep 2013.
    13. James Lake, 2017. "Free Trade Agreements As Dynamic Farsighted Networks," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 31-50, January.
    14. Zhang, Jin & Cui, Zhiwei & Zu, Lei, 2014. "The evolution of free trade networks," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 72-86.
    15. Chad Bown, 2013. "How Different Are Safeguards from Antidumping? Evidence from US Trade Policies Toward Steel," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(4), pages 449-481, June.
    16. Wilfred J. Ethier, 2002. "Trade Policies Based on Political Externalities: An Exploration, Third Version," PIER Working Paper Archive 04-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 04 Feb 2004.
    17. 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.
    18. Wilfred J. Ethier, 2006. "Selling Protection for Sale," PIER Working Paper Archive 06-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Jun 2006.
    19. Wilfred J. Ethier, 2002. "Trade Agreements Based on Political Externalities, Second Version," PIER Working Paper Archive 03-035, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 30 Nov 2003.

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