IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-08f10018.html
   My bibliography  Save this article

A note on bilateral trade agreements in the presence of irreversible investment and deferred negotiations

Author

Listed:
  • Matthew Cole

    (Florida International University)

  • M. Ryan Haley

    (University of Wisconsin - Oshkosh)

  • Aaron Lowen

    (Grand Valley State University)

Abstract

A common result in the trade literature is that a small country will realize gains from a bilateral free trade agreement with a large country. McLaren (1997) casts aspersions on this traditional belief by demonstrating that irreversible investment in the small country, with the possibility of re-negotiation by the large country, can actually make the small country prefer autarky to free trade. In this note, we identify a middle ground where the small country can realize above-autarky utility by only partially specializing (relative to the free-trade level of specialization) in export production this improvement occurs even in the presence of irreversible investment and deferred negotiations.

Suggested Citation

  • Matthew Cole & M. Ryan Haley & Aaron Lowen, 2008. "A note on bilateral trade agreements in the presence of irreversible investment and deferred negotiations," Economics Bulletin, AccessEcon, vol. 6(34), pages 1-10.
  • Handle: RePEc:ebl:ecbull:eb-08f10018
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/EB/2008/Volume6/EB-08F10018A.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Richard Chisik & Ronald B. Davies, 2004. "Gradualism In Tax Treaties With Irreversible Foreign Direct Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 113-139, February.
    2. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    3. Constantinos Syropoulos, 2002. "Optimum Tariffs and Retaliation Revisited: How Country Size Matters," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 707-727.
    4. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 4, pages 45-51, World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Felbermayr Gabriel J., 2018. "Zur Rückkehr der Machtpolitik in Handelsfragen: Theoretische Überlegungen und politische Empfehlungen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 19(3), pages 232-244, September.
    2. Zissimos, Ben, 2009. "Optimum tariffs and retaliation: How country numbers matter," Journal of International Economics, Elsevier, vol. 78(2), pages 276-286, July.
    3. Jean-Marc Malambwe Kilolo, 2018. "An elementary model of export tax war," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(2), pages 307-325, May.
    4. Collie, David R., 2019. "Trade Wars under Oligopoly: Who Wins and is Free Trade Sustainable?," Cardiff Economics Working Papers E2019/4, Cardiff University, Cardiff Business School, Economics Section.
    5. Opp, Marcus M., 2010. "Tariff wars in the Ricardian Model with a continuum of goods," Journal of International Economics, Elsevier, vol. 80(2), pages 212-225, March.
    6. Ralph Ossa, 2011. "A "New Trade" Theory of GATT/WTO Negotiations," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 122-152.
    7. Susanna Thede, 2005. "Trade policy formation when geography matters for specialisation," Working Papers 200519, School of Economics, University College Dublin.
    8. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, University Library of Munich, Germany.
    9. Chattopadhyay, Subir & Mitka, Malgorzata M., 2019. "Nash equilibrium in tariffs in a multi-country trade model," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 225-242.
    10. repec:ebl:ecbull:v:6:y:2008:i:34:p:1-10 is not listed on IDEAS
    11. Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, vol. 88(1), pages 47-61.
    12. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    13. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    14. He, Chuantian & Li, Chunding & Wang, Jing & Whalley, John, 2017. "The Armington assumption and the size of optimal tariffs," Economic Modelling, Elsevier, vol. 66(C), pages 214-222.
    15. Chau, Nancy H. & Färe, Rolf, 2011. "Shadow pricing market access: A trade benefit function approach," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1631-1663, July.
    16. Florian Freund, 2017. "Reciprocal Tariff Reductions Under Asymmetric Bargaining Power," The World Economy, Wiley Blackwell, vol. 40(5), pages 978-992, May.
    17. Fritz Breuss, 2004. "WTO Dispute Settlement: An Economic Analysis of Four EU–US Mini Trade Wars—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 4(4), pages 275-315, December.
    18. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
    19. Roger Clarke & David R. Collie, 2008. "Welfare In The Nash Equilibrium In Export Taxes Under Bertrand Duopoly," Bulletin of Economic Research, Wiley Blackwell, vol. 60(2), pages 183-189, April.
    20. Euan MacMillan, 2009. "Explaining rising regionalism and failing multilateralism : consensus decision-making and expanding WTO membership," Working Papers 200916, School of Economics, University College Dublin.
    21. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.

    More about this item

    Keywords

    irreversible investment;

    JEL classification:

    • F1 - International Economics - - Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-08f10018. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.