Reciprocity in free trade agreements
The author uses detailed trade, tariff, and income data for countries involved in 91 trade agreements negotiated since 1980 to test for reciprocity in free trade agreements. The results offer strong evidence of reciprocity in North-North and South-South free trade agreements, but there is little empirical support for reciprocity in North-South trade agreements. In particular, after controlling for other determinants of trade preferences, the results suggest that a one percent increase in preferences offered leads to about a one-half of a percent increase in preferences received in North-North and South-South trade agreements. Freund also finds evidence that large countries extract greater trade concessions from small countries. This leads to a modified form of reciprocity in North-South agreements. A large increase in access to a developing country market leads to only a small increase in access to a rich country market. The results imply that there are incentives for countries to maintain protection in order to extract more concessions from trade partners. But in general, such perverse incentives should be less of a concern in developing countries involved in North-South agreements because the value of a developing country tariff preference in terms of its effect on trade preferences from a rich country is quite small. The gains from unilateral liberalization are likely to far outweigh potential gains from using protection as a bargaining chip in trade negotiations. The evidence is consistent with a repeated game model of trade liberalization. The model presented shows that trade preferences granted are increasing in trade preferences received. This implies that countries can extract greater concessions from trade agreement members if they have higher external trade barriers. However, if a country's trade barriers are very large then the gains from reneging on the agreement in the short run will be high, making the agreement unenforceable despite offering long-term gains. So, there is a reciprocity-credibility tradeoff. High tariffs may allow countries to extract more concessions from potential trade agreement partners, but they also make the country less credible in actually implementing agreed tariff concessions. If a country's external tariff is very high relative to other countries, then it will not be able to commit credibly to any free trade agreement.
|Date of creation:||31 May 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carsten Kowalczyk & Donald R. Davis, 1998.
"Tariff Phase-Outs: Theory and Evidence from GATT and NAFTA,"
in: The Regionalization of the World Economy, pages 227-258
National Bureau of Economic Research, Inc.
- Carsten Kowalczyk & Donald Davis, 1996. "Tariff Phase-Outs: Theory and Evidence from GATT and NAFTA," NBER Working Papers 5421, National Bureau of Economic Research, Inc.
- James Brander & Paul Krugman, 1982.
"A 'Reciprocal Dumping' Model of International Trade,"
513, Queen's University, Department of Economics.
- Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
- James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc.
- James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
- Bagwell,K. & Staiger,R.W., 2000.
19, Wisconsin Madison - Social Systems.
- Carlo Perroni & John Whalley, 2000.
"The new regionalism: trade liberalization or insurance?,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 33(1), pages 1-24, February.
- Carlo Perroni & John Whalley, 1994. "The New Regionalism: Trade Liberalization or Insurance?," NBER Working Papers 4626, National Bureau of Economic Research, Inc.
- Lisandro Abrego & Carlo Perroni & John Whalley & Randall M. Wigle, 1997.
"Trade and Environment: Bargaining Outcomes from Linked Negotiations,"
NBER Working Papers
6216, National Bureau of Economic Research, Inc.
- Lisandro Abrego & Carlo Perroni & John Whalley & Randall M. Wigle, 1999. "Trade and Environment: Bargaining Outcomes from Linked Negotiations," CSGR Working papers series 27/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
- Freund, Caroline, 2000. "Multilateralism and the endogenous formation of preferential trade agreements," Journal of International Economics, Elsevier, vol. 52(2), pages 359-376, December.
- William Rogers, 1993. "Quantile regression standard errors," Stata Technical Bulletin, StataCorp LP, vol. 2(9).
- Finger, J. Michael & Reincke, Ulrich & Castro, Adriana, 1999. "Market access bargaining in the Uruguay Round - Rigid or relaxed reciprocity?," Policy Research Working Paper Series 2258, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:3061. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.