Opportunities for Cooperation in Removing Prohibitive Trade Barriers

The World Trade Organisation and Economic Development, Ben Zissimos (ed.), Cambridge: MIT Press, Forthcoming

ISE Working Paper No. 6

31 Pages Posted: 20 Nov 2017

See all articles by David DeRemer

David DeRemer

Columbia University; Kazakh British Technology University - International School of Economics and Social Sciences (ISE)

Date Written: October 14, 2017

Abstract

Much potential for trade liberalization exists in industries and markets with trade barriers that are prohibitive for all or many firms. In standard political economic theories of trade policy, observed prohibitive barriers must be globally optimal according to both individual and joint government preferences, leaving no possibility for a trade agreement. This chapter shows that in a standard imperfectly competitive model, observed prohibitive barriers may be optimal according to individual government preferences but not joint government preferences, so that a trade agreement would be valuable. Theory can then further identify market characteristics for which liberalization is most likely to be feasible. To illustrate, we consider a two-country model with Cournot firms in segmented markets. For plausible ranges of political weights on firm profits, there is a role for a trade agreement in eliminating prohibitive trade barriers. We then consider how the potential for cooperation varies with trade costs, Ricardian technological differences, competition, and firm heterogeneity. The implications of these results are discussed for negotiations involving developing countries, for whom prohibitive trade barriers remain important.

Keywords: WTO, prohibitive trade barriers, strategic trade

JEL Classification: F12, F13, F15

Suggested Citation

DeRemer, David and DeRemer, David, Opportunities for Cooperation in Removing Prohibitive Trade Barriers (October 14, 2017). The World Trade Organisation and Economic Development, Ben Zissimos (ed.), Cambridge: MIT Press, Forthcoming, ISE Working Paper No. 6, Available at SSRN: https://ssrn.com/abstract=3071449

David DeRemer (Contact Author)

Kazakh British Technology University - International School of Economics and Social Sciences (ISE) ( email )

Almaty 050000
Kazakhstan

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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