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An Economic Theory of GATT

Bagwell, Kyle; Staiger, Robert W.

Despite the important role played by GATT in the world economy, economists have not developed a unified theoretical framework that interprets and evaluates the principles that form the foundation of GATT. Our purpose here is to propose such a framework. Working within a general equilibrium trade model, we represent government preferences with a very general formulation that includes all the major political-economy models of trade policy as special cases. Using this general framework we establish three key results. First, GATT's principle of reciprocity can be viewed as a mechanism for implementing efficient trade agreements. Second, through the principle of reciprocity countries can implement efficient trade agreements if and only if they also abide by the principle on nondiscrimination. And third, preferential agreements undermine GATT's ability to deliver efficient multilateral outcomes through the principle of reciprocity, unless these agreements take the form of customs unions among partners that are sufficiently similar.

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More About This Work

Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 9697-17
Published Here
March 3, 2011

Notes

April 1997

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