POLI 354 Lecture Notes - Lecture 12: De Jure, De Facto, World Trade Organization
13 May 2018
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POLI%358% % WINTER%2018%
Poli%358%Lecture%11:%The%World%Trade%Organization:%Effectiveness%and%Enforcement%%
22nd%February%2018%
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Table%of%Contents%
- International%institutions%and%Trade%%
- Developing%countries%and%DSM%
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Recap%
- Basic%principles%
- Decision-making%process%
- Doha%round%%
o Heterogeneous*preferences%
- De%jure%vs%de%facto%depth%%
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De%Jure%vs.%De%Facto%Depth%
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Interest%groups%in%the%negotiation%process%(De%Jure)%
- De%Jure%Depth%
o No%reciprocity%
o Entrants%have%no%means%of%altering%the%market%access%
o The%more%valuable%a%country%appears%to%be%to%export%oriented%interests%in%WTO%
countries,%the%more%likely%these%groups%are%to%mobilize%and%exert%pressure%on%their%
governments%
o The%greater%will%be%the%requirements%that%governments%will%impose%on%entrants%
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Interest%groups%in%the%negotiation%process%(De%Facto)%
- De%facto%depth%
o Decided%by%entrants%after%having%bargained%bound%tariffs%
o Import%competing%countries%in%acceding%countries%can%push%their%governments%to%
raise%their%MFN%duties%relative%to%the%bound%rates%
o Democratic%institutions%leave%governments%more%vulnerable%to%such%domestic%
industry%pressure%%
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International%institutions%and%Trade%Flows%
POLI%358% % WINTER%2018%
- Lets%now%move%to%the%effectiveness%of%GATT/WTO%
- To%estimate%the%impact%of%the%GATT/WTO%on%trade%flows%we%need%an%appropriate%tool.%
- Affect*the*effectiveness*of*the*WTO-*pre*and*post*memberships,*countries*have*increased*
their*trade*%
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Gravity%Model%(Tinbergen%1962)%
- Workhorse%in%a%number%of%empirical%trade%studies%
- High%explanatory%power%
- Date%easily%available%%
- model%begins%with%newton’s%law%for%the%gravitational%force%between%two%objects%i%and%j.%
o 𝐺𝐹#$ =&'&(
)'(
*𝑤𝑖𝑡ℎ*𝑖 ≠ 𝑗%%
o Gravitational%force%is%directly%proportional%to%the%masses%of%the%objects%and%
indirectly%proportional%to%the%distance%between%them%(cost*of*shipping*goods*affect*
the*distance)%
§ Weird*if*we*see*distance*is*positively*correlated%
o 𝑋#$ =2)3'2)3(
)'(
%
o Bilateral%trade%is%directly%proportional%to%economic%size%of%two%countries%and%
indirectly%proportional%to%the%distance%between%them%%
o Use%the%log%to%get%a%linear%model%
o ln(Tradeij)=%β1ln(GDPi)%+%β2%ln(GDPj)%–%β3ln(Dij)%with%i≠j%
%
Standard%control%variables%
- Model*has*also*been*enriched*by*many*other*things%
- Adjacency%%
- Common%language-%increases*trade-*informal*institutions%
o Trade*in*US*and*Canada-*similar*informal*institutions-*facilitate*trade%
- %Colonial%links%
o dependent*on*old*masters%
- common%currency%%
- island,%landlocked%
o islands*trade*more*than*land*locked*countries*%
- institutions,%infrastructure,%migration%flows…%
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international%institutions%and%trade%
- does%GATT/WTO%increase%trade%flows%among%member%countries?%
- Rose%(2004)%finds%no%empirical%evidence%that%GATT/WTO%increases%trade%%
o Enough*to*start*debate*about*the*issue%
o Model*had*wrong*econometric*specifications….%
%
De%Jure%Members%(Goldstein%et%al,%2007)%
- Rose%(2004)%looks%art%the%effect%of%the%GATT/WTO%on%de*jure*member%%
- However,%here%is%where%informal%governance%comes%to%paly%a%role%
- Many%countries%were%not%de*jure*members%(ones*who*are*accepted*by*the*WTO),%but%they%
were%able%to%enjoy%MFN%market%access%i.e.,%de*facto*members%(countries*that*even*before*
being*formally*accepted*in*the*WTO*enjoy*MFN*status-*explains*the*MFN*pre*in*the*
diagram)%
- Moreover%the%GATT/WTO%is%only%one%of%the%many%trade%agreements%%
Document Summary
Poli 358 lecture 11: the world trade organization: effectiveness and enforcement. Interest groups in the negotiation process (de jure) Interest groups in the negotiation process (de facto) De facto depth: decided by entrants after having bargained bound tariffs. Import competing countries in acceding countries can push their governments to raise their mfn duties relative to the bound rates: democratic institutions leave governments more vulnerable to such domestic industry pressure. Lets now move to the effectiveness of gatt/wto. To estimate the impact of the gatt/wto on trade flows we need an appropriate tool. Affect the effectiveness of the wto- pre and post memberships, countries have increased their trade. Workhorse in a number of empirical trade studies. Weird if we see distance is positively correlated. 2)3"2)3: bilateral trade is directly proportional to economic size of two countries and indirectly proportional to the distance between them, use the log to get a linear model ln(tradeij)= 1ln(gdpi) + 2 ln(gdpj) 3ln(dij) with i j.
