We argue that a trade agreement which conforms to GATT's reciprocity rule benefits the (stronger) less trade-dependent country at the expense of the (weaker) more trade-dependent country. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash- bargaining solution, a "power-based" approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger's (1999, 2000) view of reciprocity as a rule that "serves to mitigate the influence of power asymmetries on negotiated outcomes."
"GATT-think" with asymmetric countries
EPIFANI, PAOLO;
2006
Abstract
We argue that a trade agreement which conforms to GATT's reciprocity rule benefits the (stronger) less trade-dependent country at the expense of the (weaker) more trade-dependent country. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash- bargaining solution, a "power-based" approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger's (1999, 2000) view of reciprocity as a rule that "serves to mitigate the influence of power asymmetries on negotiated outcomes."
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