The US Trade De cit , the Decline of the WTO and the Rise of Regionalism
نویسندگان
چکیده
This paper argues that the growing US trade de cit has caused the decline of the WTO and the rise of regional trade agreements. A country in de cit prefers to retain market power against countries with a large surplus. Multilateral cooperation restricts its choice. This notion is formalized in a three-country game in which countries negotiate multilaterally and, if that fails, bilaterally. The multilateral agreement only holds for su¢ ciently even trade balances. When one countrys de cit grows too large, a regionalist equilibrium emerges. A VAR analysis shows that the US trade balance explains over 50% of the variation in regional trade agreements. Keywords: Regionalism, RTA, Multilateralism, WTO, Trade balance, US trade de cit JEL Classi cation: C72, C73, F13, F32 Economics Department, European University Institute, Villa San Paolo, Via della Piazzuola 43, 50133 Firenze, Italy. E-mail: [email protected]. I am grateful to Karl Schlag, Pascal Courty, Elhanan Helpman, Kyle Bagwell, Helmut L1⁄2utkepohl, Renato Faccini, Philip Sauré, Liufang Chou, Sebastian Krautheim and Elie Agur for their feedback, and to Giancarlo Corsetti, Morten Ravn, Anindya Banerjee, Maria Demertzis, Michele Ruta, Ulrich Petersmann, and the participants of the EUI Trade Group and May Forum Seminars for useful discussions. All remaining errors are mine.
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