Trade Agreements and the Nature of Price Determination

Citation:

Antràs, Pol, and Robert W Staiger. 2012. “Trade Agreements and the Nature of Price Determination.” American Economic Review Papers and Proceedings 102 (3): 470-476.
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Abstract:

According to the terms-of-trade theory, negotiations over tariffs alone, coupled with an effective market access preservation rule, can bring governments to the efficiency frontier. In this paper, we show that the nature of international price determination is important for this central result of the terms-of-trade theory. While the received theory assumes that international prices are fully disciplined by aggregate market clearing conditions, we show here that support for "shallow" integration is overturned, and instead a need for "deep" integration is suggested ? wherein direct negotiations occur over both border and behind-the-border policies ? if international prices are determined through bargaining.

Notes:

Published versions have been posted with the written permission of the journals where they appeared. Standard copyright rules apply. Please download and print for personal use only. Robert W. Staiger's website

DOI:10.1257/aer.102.3.470

Last updated on 12/11/2013