Signaling in Trade Agreements

Abstract:     
In the paper, we show how the potential signaling properties of trade agreements can explain two notable features of the international trading system. First, many trade agreements involve gradual, rather than immediate, reduction of trade barriers. We demonstrate how gradualism can serve as a mechanism by which countries signal their ability to commit to future liberalization by cooperating with the current round of tariff negotiations. Second, there has been a recent emphasis on regional, as opposed to multilateral, trade liberalization.
In this paper, we demonstrate that such preferential
trade agreements can actually serve as "building blocks" to multilateral trade negotiations by allowing countries to signal their commitment to trade agreements.

Keywords: Trade agreements; Gradualism; Regional Agreements; Repeated Games

JEL Classifications: F02, F13, F15

Working Paper Series