Eric Reinhardt

Multilateral Determinants of Regionalism: The Effects of GATT/WTO on the Formation of Preferential Trading Arrangements

Preferential trading arrangements (PTAs) have spread widely over the past fifty years. During the same era, multilateral openness has grown to unprecedented heights, spurred by the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). If the cornerstone of the manifestly successful multilateral regime is nondiscrimination, why have its members increasingly resorted to preferential liberalization? We argue that developments at the heart of GATT/WTO encourage its members to form PTAs as devices to obtain bargaining leverage within the multilateral regime. Specifically, the growth in GATT/WTO membership, the periodic multilateral trade negotiation rounds, as well as participation and, especially, losses in formal GATT/WTO disputes, have led its members to seek entrance into PTAs. Conducting the first statistical tests on the subject, we find strong evidence in support of this argument.

Adjudication without Enforcement in GATT Disputes

Disputes under the General Agreement on Tariffs and Trade (GATT) exhibit a puzzling selection effect. Defendants concede more prior to GATT judgments than afterward, despite GATTs lack of enforcement power. Yet, why would states plea-bargain if they know they can spurn contrary rulings? To find out, the article develops an incomplete information model of trade bargaining with the option of adjudication. The plaintiff has greater resolve prior to a ruling, believing that the defendant might be compelled to concede to an adverse judgment—even if that belief later proves false. Surprisingly, this resolve induces more generous settlements even from defendants who intend not to comply with any ruling. After a ruling, however, this anticipatory effect is irrelevant: adjudication works best when threatened but not realized. The prospect of adjudication thus conditions the behavior of states even when enforcement is not forthcoming but not through mechanisms identified by previous studies.

Does Flexibility Promote Cooperation? An Application to the Global Trade Regime

Do flexibility provisions in international agreements—clauses allowing for legal suspension of concessions without abrogating the treaty—promote cooperation? Recent work emphasizes that provisions for relaxing treaty commitments can ironically make states more likely to form agreements and make deeper concessions when doing so. This argument has particularly been applied to the global trade regime, the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). Yet the field has not produced much evidence bearing on this claim. Our article applies this claim to the global trade regime and its chief flexibility provision, antidumping. In contrast to prior work, this article explicitly models the endogeneity and selection processes envisioned by the theory. We find that states joining the WTO are more likely to adopt domestic antidumping mechanisms. Likewise, corrected for endogeneity, states able to take advantage of the regimes principal flexibility provision, by having a domestic antidumping mechanism in place, are significantly more likely to (1) join the WTO, (2) agree to more tightly binding tariff commitments, and (3) implement lower applied tariffs as well.

Industrial Location and Voter Participation in Europe

Does the geographic concentration of industry ‘matter’ outside the United States? Observers have long speculated that while geographically concentrated industries may be influential in American politics, this is probably not the case in countries where the electorate votes more as a national constituency. Others disagree, urging that clustered industries have an advantage regardless of how the political map is drawn. We sharpen the terms of debate and weigh in with empirical evidence from a cross-sectional analysis of intended voter turnout in eight member-states of the European Union and a multi-year study of voter turnout in the Netherlands. These tests uniformly show that, across different types of electoral systems, including those in which voters vote as a national constituency, thereby removing any effects of electoral geography per se, workers in traded industries that are physically concentrated are, in fact, substantially more likely to vote than employees in traded but geographically dispersed sectors.

The Perversity of Preferences The Generalized System of Preferences and Developing Country Trade Policies, 1976-2000

Industrial countries maintain special tariff preferences, namely the Generalized System of Preferences (GSP), for imports from developing countries. Critics have highlighted the underachieving nature of such preferences, but developing countries continue to place the GSP at the heart of their agenda in multilateral negotiations. What effect do such preferences have on a recipients own trade policies? Ozden and Reinhardt develop and test a simple theoretical model of a small countrys trade policy choice, using a dataset of 154 developing countries from 1976 through 2000. They find that countries removed from the GSP adopt more liberal trade policies than those remaining eligible. The results, corrected for endogeneity and robust to numerous alternative measures of trade policy, suggest that developing countries may be best served by full integration into the reciprocity-based world trade regime rather than continued GSP-style special preferences. This paper - a product of Trade, Development Research Group - is part of a arger effort in the group to study global trade regimes.

Global Credit Markets, Political Violence, and Politically Sustainable Risk Premia

How do international financial conditions affect civil unrest? Existing studies examine the domestic economic roots of political violence but say little about the role of external financial conditions. We explore the interactions between international lending, government policy, and domestic unrest. In particular, we note that because of sovereign risk and defensive lending dynamics, credit ratings and interest rate premia are endogenous to expectations about civil violence. We test these claims using instrumental variables techniques and daily data on sovereign bond yield spreads, credit ratings, and episodes of civil violence in 59 developing countries from 1990 through 2004. After correcting for endogeneity, we find that exogenous increases in the price of foreign capital are robustly associated with increased odds of civil conflict. Primary commodity dependence, low economic growth, and poverty can also increase the odds of civil conflict by reducing access to foreign capital.