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Reevaluating the role of trade agreements: Does investment globalization make the WTO obsolete?

  • Blanchard, Emily J.

International ownership alters the role of multilateral trade institutions by redefining pecuniary externalities among countries. Regardless of the underlying cause - whether foreign direct investment, international portfolio diversification, cross-country mergers, or multinational firms -- international ownership can mitigate incentives that lead large countries to set inefficiently high tariffs. At the same time, however, foreign ownership introduces the potential for expropriation by investment-host countries, which can extract rent from foreign owners by manipulating local prices. The basic principle of reciprocity continues to serve as an important guide to efficiency, though its application must account for the pattern of international ownership in addition to traditional measures of market access.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 82 (2010)
Issue (Month): 1 (September)
Pages: 63-72

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Handle: RePEc:eee:inecon:v:82:y:2010:i:1:p:63-72
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