2011
DOI: 10.1086/659371
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A “New Trade” Theory of GATT/WTO Negotiations

Abstract: I suggest a novel theory of GATT/WTO negotiations based on Krugman's "new trade" model. It emphasizes international production relocations and is easy to calibrate to bilateral trade data. Focusing on the major players in recent GATT/WTO negotiations, I find that it implies reasonable noncooperative tariffs as well as moderate gains from GATT/WTO negotiations. A "New Trade" Theory of GATT/WTO Negotiations Ralph Ossa University of Chicago and National Bureau of Economic ResearchI suggest a novel theory of GATT… Show more

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Cited by 199 publications
(130 citation statements)
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“…Our results differ markedly from those of the previous literature on trade policy in the twosector Krugman (1980) model (Venables (1987, Krugman (1989) chapter 7 andOssa (2011)). All these contributions find that in this model non-cooperative trade policy is driven by home market effects, leading to inefficiencies compared to free trade.…”
Section: Related Literaturecontrasting
confidence: 99%
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“…Our results differ markedly from those of the previous literature on trade policy in the twosector Krugman (1980) model (Venables (1987, Krugman (1989) chapter 7 andOssa (2011)). All these contributions find that in this model non-cooperative trade policy is driven by home market effects, leading to inefficiencies compared to free trade.…”
Section: Related Literaturecontrasting
confidence: 99%
“…The common wisdom of the literature 1 (Venables (1987), Helpman and Krugman (1989), Ossa (2011)) is that in this model unilateral trade policy is set so as to agglomerate firms in the domestic economy in order to reduce the domestic price index, thereby increasing domestic welfare. An import tariff makes foreign differentiated goods more expensive relative to domestic ones so that domestic consumers shift expenditure towards domestic differentiated goods.…”
Section: Introductionmentioning
confidence: 99%
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“…This is beyond the scope of this paper, but future research building on our framework could deliver important insights for the design of national trade policies. 23 None of the existing explanations for multilateral trade cooperation-based on terms of trade effects (Bagwell and Staiger 1999), commitment motives (Maggi and Rodriguez-Clare 2007), production relocation externalities (Ossa 2009), strategic uncertainty (Calvo-Pardo 2009), or profit-shifting motives (Mrazova 2010)-accounts for the sequentiality of firms' export strategies. 24 Lederman, Olarreaga and Payton (2010) provide suggestive evidence that this may be the case.…”
Section: Resultsmentioning
confidence: 99%
“…Finally, our analysis has focused exclusively on a simple problem where a single country unilaterally imposes an exchange rate stabilization, taking as given the policies of other countries. In analogy to a large literature on strategic interactions in trade policy (Bagwell and Staiger, 1999;Ossa, 2011), our prediction that exchange rate policy alters the equilibrium allocation of factors of production may also serve as the basis of a multilateral theory of strategic interactions in the choice of exchange rate regime. Bagwell, K. and R. Staiger (1999).…”
Section: Makes Progress In This Dimensionmentioning
confidence: 94%