EconPapers    
Economics at your fingertips  
 

Profit Shifting and Trade Agreements in Imperfectly Competitive Markets

Kyle Bagwell and Robert Staiger ()

No 14803, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When markets are imperfectly competitive, trade policies can alter the terms of trade, shift profits from one country to another, and moderate or exacerbate existing distortions that are associated with the presence of monopoly power. In light of the various ways in which trade policies may influence welfare, it might be expected that new rationales for trade agreements would arise once imperfectly competitive markets are allowed. In this paper, we consider several trade models that feature imperfectly competitive markets and argue that the basic rationale for a trade agreement is, in fact, the same rationale that arises in perfectly competitive markets. In all of the models that we consider, and whether or not governments have political-economic objectives, the only rationale for a trade agreement is to remedy the inefficient terms-of-trade driven restrictions in trade volume. Having identified the problem that a trade agreement might solve, we next evaluate the form that an efficiency-enhancing trade agreement might take. Here, too, our results parallel the results established previously for models with perfectly competitive markets. In particular, we show that the principles of reciprocity and non-discrimination (MFN) are efficiency enhancing, as they serve to "undo" the terms-of-trade driven restrictions in trade volume that occur when governments pursue unilateral trade policies.

JEL-codes: F12 F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2009-03
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Published as Kyle Bagwell & Robert W. Staiger, 2012. "Profit Shifting And Trade Agreements In Imperfectly Competitive Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1067-1104, November.

Downloads: (external link)
http://www.nber.org/papers/w14803.pdf (application/pdf)

Related works:
Journal Article: PROFIT SHIFTING AND TRADE AGREEMENTS IN IMPERFECTLY COMPETITIVE MARKETS (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14803

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14803

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-12-14
Handle: RePEc:nbr:nberwo:14803