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Why are safeguards needed in a trade agreement?

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  • Meredith A. Crowley

Abstract

This paper reviews the theoretical and empirical literature on the use of safeguards in a trade agreement. It then analyzes the available data on the use of safeguards by WTO members to examine two hypotheses in the economics literature, that safeguards improve welfare by facilitating tariff reductions and that safeguards improve welfare by providing insurance against adverse economic shocks. I find that countries which undertook larger tariff reductions during the Uruguay Round conducted more safeguards investigations after the WTO was established. However, this result is not robust across all specifications of the model and should not be regarded as definitive. I find no evidence to support the hypothesis that safeguards improve welfare by providing insurance. The empirical analysis rejects the hypothesis of a relationship between safeguards and aggregate uncertainty.

Suggested Citation

  • Meredith A. Crowley, 2006. "Why are safeguards needed in a trade agreement?," Working Paper Series WP-06-06, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-06-06
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    References listed on IDEAS

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    Cited by:

    1. Bown, Chad P. & Crowley, Meredith A., 2013. "Import protection, business cycles, and exchange rates: Evidence from the Great Recession," Journal of International Economics, Elsevier, vol. 90(1), pages 50-64.

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    Keywords

    General Agreement on Tariffs and Trade (Organization) ; Trade;

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