Working Paper: NBER ID: w26132
Authors: Gene M. Grossman; Phillip McCalman; Robert W. Staiger
Abstract: What incentives do governments have to negotiate "new trade agreements," i.e., agreements that constrain not only governments' choices of tariffs, but also their domestic regulatory policies? We focus on horizontal product standards, i.e., those that impose requirements along a horizontal dimension of product differentiation. We introduce differences in ideal products across countries and consider cases in which product choices do not and do confer externalities on other national consumers. In addition to characterizing the features of the optimal new trade agreement in each environment, we ask whether detailed negotiations about regulatory rules are needed for global efficiency or whether an "old trade agreement" augmented by some "policed decentralization" of regulatory procedures can achieve the same outcomes.
Keywords: Trade Agreements; Regulatory Convergence; International Trade; Product Standards
JEL Codes: F02; F12; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Governments have incentives to negotiate new trade agreements (F13) | Regulatory standards are adopted by governments (L98) |
| Lack of cooperation in regulatory standards (L15) | Global inefficiencies emerge (D61) |
| Differences in regulatory standards (L59) | Increased costs for firms and consumers (H32) |
| Horizontal product standards (L15) | Inefficiencies due to adaptation costs (D61) |
| New trade agreement stipulating optimal standards (F13) | Achieves global efficiency (D61) |
| Regulatory convergence (G38) | Optimal outcomes in trade agreements (F13) |