Trade Policies Based on Political Externalities: An Exploration, Third Version

Wilfred Ethier ()

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: During the past half century, multilateral trade liberalization has reduced tariffs to historically low levels. The Received Theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, offers an explanation that has become the conventional wisdom among international trade theorists. But this explanation displays two puzzles that render it inconsistent with actual trade policy and actual trade agreements: the Terms-of-Trade Puzzle and the Anti-Trade-Bias Puzzle. This paper addresses inter-governmental political externalities in a model with terms-of-trade externalities. The model resolves the Terms-of-Trade Puzzle if and only if political externalities dominate terms-of-trade externalities. But it resolves the Anti-Trade-Bias Puzzle, and delivers results consistent with what we actually observe, only if terms-of-trade externalities play no role whatsoever.

Keywords: Political externalities; trade agreements; the Received Theory; the Terms-of-Trade Puzzle; the Anti-Trade-Bias Puzzle (search for similar items in EconPapers)
JEL-codes: F02 F13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2002-11-23, Revised 2004-02-04
New Economics Papers: this item is included in nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:04-006

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