Uncertainty and Trade Agreements

Nuno Limão and Giovanni Maggi

Chapter 3 in Policy Externalities and International Trade Agreements, 2018, pp 47-88 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We explore conditions under which trade agreements can provide gains by reducing trade policy uncertainty. Given the degree of income risk aversion, this is more likely when economies are more open, export supply elasticities are lower, and economies more specialized. Governments have stronger incentives to sign trade agreements when the trading environment is more uncertain. As exogenous trade costs decline, the gains from reducing tariff uncertainty become more important relative to reducing average tariff levels. We also develop a simple “sufficient statistic” approach to quantify the gains from managing trade policy uncertainty, and examine the impact of ex ante investments on such gains.

Keywords: Trade; International Trade; WTO; World Trade Organization; Investment; Globalization; Externality; Policy; Cooperation (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2018
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Related works:
Journal Article: Uncertainty and Trade Agreements (2015)
Working Paper: Uncertainty and Trade Agreements (2013)
Working Paper: Uncertainty and Trade Agreements (2013)
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