‘GATT-Think’ with Asymmetric Countries

Paolo Epifani and Juliette Vitaloni ()
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Juliette Vitaloni: CESPRI

No 141, KITeS Working Papers from KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy

Abstract: We argue that, in the presence of asymmetric countries, a trade agreement that conforms to GATT’s reciprocity rule allows the (stronger) less trade dependent country to improve its welfare relative to both the free trade and the trade war. Conversely, the (weaker) more trade dependent country cannot reach the free trade welfare level under reciprocity, although its welfare improves relative to the trade war. Reciprocity is so unfavorable to the weaker country that it maybeworse o .under reciprocity than under the Nash bargaining solution, a 'power-based' approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger (1999, 2000)’s view of reciprocity as a rule that "serves to mitigate the influence of power asymmetries on negotiated outcomes".

Keywords: Reciprocity; Trade negotiations; Trade dependence; Nash bargaining solution. (search for similar items in EconPapers)
JEL-codes: F02 F13 F15 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003-03, Revised 2003-03
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Related works:
Journal Article: “GATT‐think” with Asymmetric Countries* (2006)
Working Paper: GATT-Think with Asymmetric Countries (2003)
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