On the Emergence of an MFN Club: Equal Treatment in an Unequal World

33 Pages Posted: 20 Jan 2009

See all articles by Kamal Saggi

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Faruk Sengul

affiliation not provided to SSRN

Abstract

Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN principle of non-discrimination. The underlying model is that of oligopolistic intraindustry trade. While an MFN club does not alter average tariff levels across countries, it increases aggregate world welfare; makes non-members worse off; and can immiserize its high cost members. These results imply that (i) core WTO rules such as MFNare valuable even if multilateral negotiations deliver limited trade liberalization and (ii) the distributional effects of MFN maybe one reason why developing countries have been granted Special and Differential treatment at the WTO.

Suggested Citation

Saggi, Kamal and Sengul, Faruk, On the Emergence of an MFN Club: Equal Treatment in an Unequal World. Canadian Journal of Economics, Vol. 42, Issue 1, pp. 267-299, February 2009, Available at SSRN: https://ssrn.com/abstract=1330646 or http://dx.doi.org/10.1111/j.1540-5982.2008.01508.x

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

Faruk Sengul

affiliation not provided to SSRN ( email )

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