National Treatment At The Wto: The Roles Of Product And Country Heterogeneity
This paper analyzes the World Trade Organization's (WTO's) national treatment (NT) clause in a two-country model where quality of goods and/or market size are heterogenous across countries. When market size is symmetric across countries, a reciprocal NT agreement (i) benefits the high-quality country, (ii) hurts the low-quality country, and (iii) delivers higher aggregate world welfare. However, such an agreement can arise in equilibrium if the high-quality country's market is relatively bigger and the quality gap between goods is small (i.e., goods are sufficiently "alike"). The qualitative nature of these results does not change when quality is endogenously determined. Copyright © (2008) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 49 (2008)
Issue (Month): 4 (November)
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