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Reciprocal Trade Liberalization

  • Kyle Bagwell
  • Robert W. Staiger

Why have governments found reciprocal trade agreements such as GATT to be a more effective means of facilitating trade liberalization than unilateral initiatives? We provide in this paper an analytic framework for the study of reciprocal trade agreements. We use this framework to establish three main results. First, we argue that political-economy factors are important for explaining the range of trade policies observed, but that these factors cannot explain why governments seek reciprocal trade agreements as an institutional form for implementing their preferred policies. Rather, whether or not governments are politically motivated, Johnson (1953-54) was right: The central purpose of a reciprocal trade agreement is to eliminate the terms-of-trade driven policies that arise in the absence of such an agreement. Second, we establish an economic interpretation of the principles of reciprocity and nondiscrimination that represent the foundation of postwar reciprocal trade agreements. Finally, we offer new insights regarding the treatment of export subsidies in reciprocal trade agreements.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5488.

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Date of creation: Mar 1996
Date of revision:
Handle: RePEc:nbr:nberwo:5488
Note: ITI
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  1. Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
  2. Rodrik, Dani, 1994. "What does the Political Economy Literature on Trade Policy (Not) Tell Us That We Ought to Know?," CEPR Discussion Papers 1039, C.E.P.R. Discussion Papers.
  3. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  4. Paul Krugman, 1991. "The move toward free trade zones," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-58.
  5. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  6. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  7. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 166, Princeton, Woodrow Wilson School - Public and International Affairs.
  8. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  9. Chari, V V & Kehoe, Patrick J, 1990. "International Coordination of Fiscal Policy in Limiting Economies," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 617-36, June.
  10. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, vol. 80(4), pages 779-95, September.
  11. Harry G. Johnson, 1965. "An Economic Theory of Protectionism, Tariff Bargaining, and the Formation of Customs Unions," Journal of Political Economy, University of Chicago Press, vol. 73, pages 256.
  12. Feenstra, Robert C., 1986. "Trade policy with several goods and market linkages," Journal of International Economics, Elsevier, vol. 20(3-4), pages 249-267, May.
  13. Deardorff, Alan V., 1996. "International externalities in the use of pollution policies," International Review of Law and Economics, Elsevier, vol. 16(1), pages 53-59, March.
  14. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  15. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
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