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Coercive Trade Policy

Author

Listed:
  • Vincent Anesi

    (University of Nottingham and GEP)

  • Giovanni Facchini

    (University of Nottingham,CEPR, CES-Ifo, CReAM, GEP, IZA and Centro Studi Luca d'Agliano)

Abstract

Empirical evidence suggests trade coercion exercised unilaterally is significantly less likely to induce concessions than coercion exercised through an international organization. In this paper we build a two-country model of coercion that can provide a rationale for this finding, and for how "weak" international institutions might be effective, even if their rulings cannot be directly enforced. In particular we show that if coercion is unilateral, the country requesting the policy change will demand a concession so substantial to make it unacceptable to its partner, and a trade war will ensue. If the parties can instead commit to an international organization (IO), compliance is more likely, because the potential IO ruling places a cap on the Foreign government's incentives to signal its resolve.

Suggested Citation

  • Vincent Anesi & Giovanni Facchini, "undated". "Coercive Trade Policy," Development Working Papers 376, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:376
    as

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    File URL: https://www.dagliano.unimi.it/media/WP2014_376.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    GATT; WTO; Dispute Settlement; Political Economy;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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