Trade Agreements Based on Political Externalities, Second Version

23 Pages Posted: 1 Dec 2003

See all articles by Wilfred J. Ethier

Wilfred J. Ethier

University of Pennsylvania - Department of Economics

Date Written: November 30, 2003

Abstract

During the past half century, multilateral trade liberalization has reduced tariffs to historically low levels. The Received Theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, offers an explanation that has become the conventional wisdom among international trade theorists. But this explanation displays two puzzles that render it inconsistent with actual trade policy and actual trade agreements. This paper introduces intergovernmental political externalities into a model with terms-of-trade externalities. It delivers results consistent with what we actually observe, and thus resolves the puzzles, if and only if political externalities dominate terms-of-trade externalities.

JEL Classification: F02, F13

Suggested Citation

Ethier, Wilfred J., Trade Agreements Based on Political Externalities, Second Version (November 30, 2003). Available at SSRN: https://ssrn.com/abstract=474562 or http://dx.doi.org/10.2139/ssrn.474562

Wilfred J. Ethier (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
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