Reevaluating the role of trade agreements: does investment globalization make the WTO obsolete?

Arbeitspapier

This paper demonstrates that international ownership can mitigate the terms of trade externalities that lead large countries to set inefficiently high tariffs, and may thereby substitute for negotiated tariff liberalization in eliminating the strategic manipulation of world prices. The policy prediction is unclear, however, since international cross-ownership also introduces an internal cost-shifting externality that can drive investment-host countries to expand local market access beyond efficient levels in an effort to extract rents from foreign investors. An immediate implication is that simply making large countries “act small” or completely diversify their global investment portfolios to neutralize traditionally understood terms of trade cost-shifting motives cannot ensure efficient trade policy regimes in an environment with international investment. At the same time, a modified version of the principle of reciprocity does continue to serve as an important guide to efficiency by balancing countries' external and internal pecuniary externalities.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1735

Classification and Topics

• Classification: Wirtschaft ; Global Outlook ; Trade Policy; International Trade Organizations ; Economic Integration ; International Investment; Long-term Capital Movements

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Blanchard, Emily J.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/25780
• Last update: 10.03.2025, 11:44 AM CET