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The Economics of Trade Agreements in the Linear Cournot Delocation Model

Existing theories of trade agreements suggest that GATT/WTO efforts to reign in export subsidies represent an inefficient victory for exporting governments that comes at the expense of importing governments.

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Building from the Cournot delocation model first introduced by Venables (1985), we demonstrate that it is possible to develop a formal treatment of export subsidies in trade agreements in which a more benign interpretation of e¤orts to restrain export subsidies emerges. And we suggest that the gradual tightening of restraints on export subsidies that has occurred in the GATT/WTO may be interpreted as deriving naturally from the gradual reduction in import barriers that member countries have negotiated. Together with existing theories, the Cournot delocation model may help to provide a more nuanced and complete understanding of the treatment of export subsidies in trade agreements.

No: ERSD-2009-10

Authors:
Kyle Bagwell — Stanford and NBER
Robert W. Staiger — Stanford and NBER

Manuscript date: October 2009

 
  

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This is a working paper, and hence it represents research in progress. This paper represents the opinions of the author, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title.

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