All Rights Reserved
AccessEcon LLC 2006, 2008.
Powered by MinhViet JSC
ralph lauren polo

 
Nuno Limão and Kamal Saggi
 
''Size Inequality, Coordination Externalities and International Trade Agreements''
 
 
Developing countries now account for a significant fraction of world trade and two thirds of the membership of the World Trade Organization (WTO). However, many are still individually small and thus have a limited ability to bilaterally extract and enforce trade concessions from larger developed economies even though as a group they would be able to do so. We show that this coordination externality generates asymmetric outcomes under agreements that rely on bilateral threats of trade retaliation---such as the WTO---but not under agreements extended to include certain financial instruments. In particular, we find that an extended agreement generates improvements in global efficiency and equity if it includes the exchange of bonds prior to trading but not if it relies solely on ex-post fines. Moreover, a combination of bonds and fines generates similar improvements even if small countries are subject to financial constraints that prevent them from posting bonds.
 
 
Keywords: trade agreements, tariffs, bonds, fines.
JEL: F1 - Trade: General
O1 - Economic Development: General
 
Manuscript Received : Sep 07 2013 Manuscript Accepted : Sep 08 2013

  This abstract has been downloaded 560 times                The Full PDF of this paper has been downloaded 107680 times