Trade Agreements, Deep Integration and Welfare

Yale University, New Haven CT

Investigators

Abstract

Abstract Trade agreements increasingly focus on domestic policies such as product standards or environmental regulations, which has implications for society at large. The main objective of the project is to use rigorous economic analysis to examine the welfare impacts of deep-integration agreements. These are international trade agreements negotiated by considering the views of different interest groups. While the natural starting point of the project is an examination of shallow trade agreements that deal only with trade policies, this research focuses primarily on deep-integration aspects. The overarching insight is that a key determinant of the welfare effects of an international trade agreement depends on the structure of coalitions among different interest groups. The reference point for this project is the canonical terms-of-trade model, in which there is no political-economy rationale for trade negotiations; in this model the only rationale for negotiations is to prevent countries from manipulating terms of trade. The approach in this project differs from the canonical one in several ways. The project considers a continuum of small countries, which have no ability to manipulate terms of trade, and take into account the role of interest groups in trade negotiations. In order to examine how agreements that incorporate the stance of interest groups affect welfare, the research distinguishes between the governments' positive objectives and a normative criterion. Finally, the project models regulatory policies in a novel way that is tractable and will highlight the different implications of product regulations that primarily deals with locally-sold products, and process regulations that are on the production processes used locally. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.