Profit Shifting and Trade Agreements in Imperfectly Competitive Markets

38 Pages Posted: 11 Oct 2012

See all articles by Kyle Bagwell

Kyle Bagwell

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Robert W. Staiger

Stanford University; University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: November 2012

Abstract

Do new rationales for trade agreements arise once imperfectly competitive markets are allowed? We consider several trade models that feature imperfectly competitive markets and argue that the basic rationale for a trade agreement is, in fact, the same rationale that arises in perfectly competitive markets. In all of the models that we consider, and whether or not governments have political–economic objectives, the only rationale for a trade agreement is to remedy the inefficient terms‐of‐trade‐driven restrictions in trade volume. We also show that the principles of reciprocity and nondiscrimination continue to be efficiency enhancing in these settings.

Suggested Citation

Bagwell, Kyle and Staiger, Robert W., Profit Shifting and Trade Agreements in Imperfectly Competitive Markets (November 2012). International Economic Review, Vol. 53, Issue 4, pp. 1067-1104, 2012, Available at SSRN: https://ssrn.com/abstract=2160158 or http://dx.doi.org/10.1111/j.1468-2354.2012.00712.x

Kyle Bagwell (Contact Author)

Stanford University - Department of Economics ( email )

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Robert W. Staiger

Stanford University ( email )

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University of Wisconsin - Madison - Department of Economics ( email )

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