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Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?

In: Policy Externalities and International Trade Agreements

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  • Nuno Limão

Abstract

We analyze whether linking international cooperation in trade policy to environmental policy (or other issues with nonpecuniary externalities) promotes more cooperation in both policies, or whether cooperation in one is strengthened at the expense of the other. In the context of self-enforcing agreements, we show that if the policies are independent in the government’s objective function, then linkage promotes cooperation in one policy at the expense of the policy that is easier to enforce under no-linkage. However, if the linked policies are not independent and if these policies are strategic complements, then linkage can sustain more cooperation in both issues than no-linkage. The policies are strategic complements only if (i) the production externality has cross-border effects; (ii) the weight on the externality cost is high; (iii) import competing lobbies are not “powerful”.

Suggested Citation

  • Nuno Limão, 2018. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 9, pages 257-281, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789813147980_0009
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    More about this item

    Keywords

    Trade; International Trade; WTO; World Trade Organization; Investment; Globalization; Externality; Policy; Cooperation;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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