Working Paper: CEPR ID: DP10687
Authors: Vincent Anesi; Giovanni Facchini
Abstract: Empirical evidence suggests trade coercion exercised unilaterally is significantly less likely to induce concessions than coercion exercised through an international organization. In this paper we build a two-country model of coercion that can provide a rationale for this finding, and for how ``weak'' international institutions might be effective, even if their rulings cannot be directly enforced. In particular we show that if coercion is unilateral, the country requesting the policy change will demand a concession so substantial to make it unacceptable to its partner, and a trade war will ensue. If the parties can instead commit to an international organization (IO), compliance is more likely, because the potential IO ruling places a cap on the Foreign government's incentives to signal its resolve.
Keywords: Dispute settlement; GATT; Political economy; WTO
JEL Codes: F12; F16; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unilateral coercion (C72) | trade wars (F19) |
| multilateral coercion (D74) | concessions from the home government (H13) |
| multilateral coercion (D74) | compliance (K40) |
| partial commitment to IO (L29) | trade wars (F19) |
| partial commitment to IO (L29) | lack of concessions (D74) |