American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Uncertainty and Trade Agreements
American Economic Journal: Microeconomics
vol. 7,
no. 4, November 2015
(pp. 1–42)
Abstract
We explore conditions under which trade agreements can provide gains by reducing trade policy uncertainty. Given the degree of income risk aversion, this is more likely when economies are more open, export supply elasticities are lower, and economies more specialized. Governments have stronger incentives to sign trade agreements when the trading environment is more uncertain. As exogenous trade costs decline, the gains from reducing tariff uncertainty become more important relative to reducing average tariff levels. We also develop a simple "sufficient statistic" approach to quantify the gains from managing trade policy uncertainty, and examine the impact of ex ante investments on such gains. (JEL D81, F13)Citation
Limão, Nuno, and Giovanni Maggi. 2015. "Uncertainty and Trade Agreements." American Economic Journal: Microeconomics, 7 (4): 1–42. DOI: 10.1257/mic.20130163Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- F13 Trade Policy; International Trade Organizations
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