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Trade disputes, quality choice, and economic integration

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  • Chisik, Richard

Abstract

Recent work demonstrates the importance of developing high quality output in order to compete in export markets and other recent studies verify the prevalence of fixed and ongoing trade costs while participating in those markets. I consider the joint choice of quality and export promotion costs when trade relationships are subject to temporary disputes. When transparency is low and macroeconomic instability is high, disputes arrive more frequently and, therefore, firms may inefficiently choose lower levels of quality and export promotion. These, in turn, build shallower trading relationships with less trade volumes and higher tariffs, and generate greater trade reductions during the more common trade disputes. Several institutional features of the WTO dispute settlement mechanism that are generally lacking in preferential trade agreements such as improved transparency, dispute investigation, and the provision to recommend asymmetric continuation payoffs can ameliorate these inefficient quality choice outcomes. Hence, lower quality output and lower quality trading relationships may be more endemic to countries that depend on preferential trading areas as opposed to the WTO.

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  • Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, vol. 88(1), pages 47-61.
  • Handle: RePEc:eee:inecon:v:88:y:2012:i:1:p:47-61
    DOI: 10.1016/j.jinteco.2012.01.010
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    Cited by:

    1. Flach, Lisandra & Gräf, Fabian, 2020. "The impact of trade agreements on world export prices," Munich Reprints in Economics 70372, University of Munich, Department of Economics.
    2. Sergei Guriev & Mikhail Klimenko, 2015. "Duration and Term Structure of Trade Agreements," Economic Journal, Royal Economic Society, vol. 125(589), pages 1818-1849, December.
    3. Celik, Levent & Karabay, Bilgehan & McLaren, John, 2020. "Fast-track authority: A hold-up interpretation," Journal of International Economics, Elsevier, vol. 127(C).
    4. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.
    5. Elizabeth M Moore & Luis Alfonso Dau & Santiago Mingo, 2021. "The effects of trade integration on formal and informal entrepreneurship: The moderating role of economic development," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(4), pages 746-772, June.
    6. Lisandra Flach & Fabian Gräf, 2018. "The Impact of Trade Agreements on World Export Prices," CESifo Working Paper Series 7032, CESifo.
    7. Kunal Dasgupta & Jordi Mondria, 2015. "Gains from Trade under Quality Uncertainty," Working Papers tecipa-526, University of Toronto, Department of Economics.
    8. Richard Chisik & Chuyi Fang, 2021. "Cross-retaliation and International Dispute Settlement," Working Papers 078, Ryerson University, Department of Economics.

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    More about this item

    Keywords

    Quality choice; Irreversibilities; Economic integration dispute settlement; Dynamic games; WTO; Preferential trade agreements;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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