Size Inequality, Coordination Externalities and International Trade Agreements / Nuno Limao, Kamal Saggi.

Format:

Book

Author/Creator:

Limao, Nuno.

Contributor:

National Bureau of Economic Research.

Saggi, Kamal.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17603.

NBER working paper series no. w17603

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

Developing countries now account for a significant fraction of both 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.

Notes:

Print version record

November 2011.