A Quantitative Analysis of the Terms-of-Trade Theory — Marcos Ritel

Sprecher

Marcos Ritel (Kühne Logistics University - KLU)

Abstract

I evaluate whether predictions of the terms-of-trade theory, the leading argument in Economics on the formation of trade treaties, are consistent with the data. The theory says that trade agreements help governments internalize a terms-of-trade externality that arises from exploiting market power. I ask what import tariffs countries would choose if they set trade policy exclusively with this purpose. Motivated by empirical evidence on tariffs, I pursue this goal in the context of a quantitative gravity model that captures non-cooperative and partially cooperative behavior among countries in a theory-consistent way. I check whether its predictions can be brought in line with observed tariffs of members and non-members of the World Trade Organization.

Raum

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