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Income Effects and Trade Agreements

Author

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  • David R. DeRemer

    (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

Abstract

This paper considers trade agreements in a sufficiently general framework to encompass both imperfectly competitive market structures and income effects in government objectives. We show that governments choose globally efficient policies if they act as if they do not value the impact of their policies on their terms of trade. The results confirm that additional international externalities that arise in imperfectly competitive settings are the result of government failure to equate markups between sectors with domestic policies, not demand-side factors.

Suggested Citation

  • David R. DeRemer, 2016. "Income Effects and Trade Agreements," CERS-IE WORKING PAPERS 1616, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1616
    as

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    File URL: http://econ.core.hu/file/download/mtdp/MTDP1616.pdf
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    References listed on IDEAS

    as
    1. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    2. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    3. Bagwell, Kyle & Staiger, Robert W., 2015. "Delocation and trade agreements in imperfectly competitive markets," Research in Economics, Elsevier, vol. 69(2), pages 132-156.
    4. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
    5. Ralph Ossa, 2011. "A "New Trade" Theory of GATT/WTO Negotiations," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 122-152.
    6. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
    7. Jonathan I. Dingel, 2017. "The Determinants of Quality Specialization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1551-1582.
    8. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    9. Kyle Bagwell & Robert W. Staiger, 2016. "The Design of Trade Agreements," NBER Working Papers 22087, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    trade agreements; income effects; non-homothetic preferences;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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