Author： Bagwell Kyle Staiger Robert W.
Publisher： American Economic Association
ISSN： 0002-8282
Source： The American Economic Review, Vol.101, Iss.4, 2011-06, pp. : 1238-1273
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Abstract
According to the terms-of-trade theory, governments use trade agreements to escape from a terms-of-trade-driven prisoner's dilemma. We use the terms-of-trade theory to develop a relationship that predicts negotiated tariff levels on the basis of pre-negotiation data: tariffs, import volumes and prices, and trade elasticities. We then confront this predicted relationship with data on the outcomes of tariff negotiations associated with the accession of new members to the World Trade Organization. We find strong and robust support for the central predictions of the terms-of-trade theory in the observed pattern of negotiated tariff cuts.
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