What Do Trade Agreements Really Do?

NBER Working Paper No. 24344

Issued in February 2018

NBER Program(s):International Trade and Investment, Political Economy



As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization, they have become more difficult to fit into received economic theory. Nevertheless, most economists continue to regard trade agreements such as the Trans Pacific Partnership (TPP) favorably. The default view seems to be that these arrangements get us closer to free trade by reducing transaction costs associated with regulatory differences or explicit protectionism. An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms – international banks, pharmaceutical companies, multinational firms. They may result in freer, mutually beneficial trade, through exchange of market access. But they are as likely to produce purely redistributive outcomes under the guise of “freer trade.”

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w24344

Published: Dani Rodrik, 2018. "What Do Trade Agreements Really Do?," Journal of Economic Perspectives, vol 32(2), pages 73-90. citation courtesy of

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