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Political Externalities, Nondiscrimination, and a Multilateral World

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  • Wilfred J. Ethier

Abstract

During the past half century, multilateral trade liberalization has reduced tariffs to historically low levels. The “Received Theory” of multilateral trade agreements, based solely on terms‐of‐trade externalities between national governments, offers an explanation that has become the conventional wisdom. But it is dramatically inconsistent with actual trade agreements. This paper offers an alternative explanation, based on intergovernmental political externalities, consistent with what we actually observe. With remarkably little necessary formal structure—in particular, no formal bargaining model—this framework (chosen to parallel actual experience) gives an immediate and transparent role to the basic characteristics of contemporary trade agreements: gradual liberalization, reciprocity, nondiscrimination, and multilateralism.

Suggested Citation

  • Wilfred J. Ethier, 2004. "Political Externalities, Nondiscrimination, and a Multilateral World," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 303-320, August.
    • Handle: RePEc:bla:reviec:v:12:y:2004:i:3:p:303-320
    DOI: 10.1111/j.1467-9396.2004.00451.x
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    References listed on IDEAS

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    1. Corden, W. Max., 1997. "Trade Policy and Economic Welfare," OUP Catalogue, Oxford University Press, edition 2, number 9780198775348.
    2. McCalman, Phillip, 2002. "Multi-lateral trade negotiations and the Most Favored Nation clause," Journal of International Economics, Elsevier, vol. 57(1), pages 151-176, June.
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