Delocation and Trade Agreements in Imperfectly Competitive Markets
43 Pages Posted: 3 Nov 2009 Last revised: 13 Sep 2024
Date Written: October 2009
Abstract
We consider the purpose and design of trade agreements in imperfectly competitive environments featuring firm-delocation effects. In both the segmented-market Cournot and the integrated-market monopolistic competition settings where these effects have been identified, we show that the only rationale for a trade agreement is to remedy the inefficiency attributable to the terms-of-trade externality, the same rationale that arises in perfectly competitive markets. Furthermore, and again as in the perfectly competitive benchmark case, we show that the principle of reciprocity is efficiency enhancing, as it serves to "undo" the terms-of-trade driven inefficiency that occurs when governments pursue unilateral trade policies. Our results therefore indicate that the terms-of-trade theory of trade agreements applies to a broader set of market structures than previously thought.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A 'New Trade' Theory of GATT/WTO Negotiations
By Ralph Ossa
-
Profit Shifting and Trade Agreements in Imperfectly Competitive Markets
By Kyle Bagwell and Robert W. Staiger
-
The Economics of Trade Agreements in the Linear Cournot Delocation Model
By Kyle Bagwell and Robert W. Staiger
-
By Kyle Bagwell and Robert W. Staiger
-
Natural Resources and Non-Cooperative Trade Policy
By Roberta Piermartini, Michele Ruta, ...
-
The Economics of Permissible WTO Retaliation
By Chad P. Bown and Michele Ruta
-
The Economics of Permissible WTO Retaliation
By Chad P. Bown and Michele Ruta
-
Trade Policy: Home Market Effect Vs. Terms of Trade Externality
By Alessia Campolmi, Harald Fadinger, ...