Trade Disputes, Quality Choice, and Economic Integration

Richard Chisik

No 22, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: Recent work demonstrates the importance of developing high quality output in order to compete in export markets and other recent studies verify the prevalence of fixed and ongoing trade costs while participating in those markets. I consider the joint choice of quality and export promotion costs when trade relationships are subject to temporary disputes. When transparency is low and macroeconomic instability is high, disputes arrive more frequently and, therefore, firms may inefficiently choose lower levels of quality and export promotion. These, in turn, build shallower trading relationships with less trade volumes and higher tariffs, and generate greater trade reductions during the more common trade disputes. Several institutional features of the WTO that are generally lacking in preferential trade agreements such as improved transparency, dispute investigation, and the provision to recommend asymmetric continuation payoffs can ameliorate these inefficient quality choice outcomes. Hence, lower quality output and lower quality trading relationships may be more endemic to countries that depend on preferential trading areas as opposed to the WTO.

Keywords: Quality Choice; Irreversibilities; Economic Integration Dispute Settlement; Dynamic Games; WTO; Preferential Trade Agreements. (search for similar items in EconPapers)
JEL-codes: C73 F13 F15 K33 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-08
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Trade disputes, quality choice, and economic integration (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:rye:wpaper:wp022

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