Reciprocity in Trade Negotiations and Welfare

Pascalis Raimondos, Alan D. Woodland

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We propose a reciprocity rule for use in multilateral trade policy negotiations that is guaranteed to raise welfare of all participating countries under minimal assumptions. Our reciprocity rule requires all countries to raise the quantities of their net imports by the same proportion. We show that, starting from a Nash tariff equilibrium, a tariff reform that delivers proportional increases in all countries' net imports will unambiguously raise welfare in each country. The structure imposed by the quantity-based reciprocity rule delivers this strong welfare result for a household welfare maximizing government without concern for general equilibrium price impacts. However, it does not generalize to the wide range of political economy welfare functions handled by Bagwell and Staiger.
Original languageEnglish
JournalJournal of International Economics
Volume111
Pages (from-to)134-142
Number of pages9
ISSN0022-1996
DOIs
Publication statusPublished - May 2018
Externally publishedYes

Keywords

  • Trade negotiations
  • Reciprocity
  • Tariff reform

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