The seminar will be held in the Visitor Centre at 3:15 pm.
Philip Sauré (Swiss National Bank)
Abstract
When terms of trade externalities are the only source of cross-border nefficiencies, trade efficiencies, trade negotiators must negotiate market access only. Based on this principle, Bagwell and Staiger (2006) argue against the WTO subsidy rules. The present paper shows that their argument fails when trade agreements are required to be self-enforceable. By affecting output, subsidies impact the self-enforcement constraints, which, in turn, determine the policies of trade agreements. Consequently, trade agreements must include subsidy rules. In realistic scenarios, banning production subsidies is efficient while negotiating market access only is inefficient. In this sense, this paper makes a strong case for the WTO subsidy rules.
Keywords: Trade Agreement, Subsidy, Self-enforceability.
JEL Classifications: F10, F13