Inhoud
The Political Economy of the World Trading System, Hoekman and Kostecki
(2001)..........................................................................................................2
The World Trade Organization and the Future of Multilateralism, Baldwin
(2015)..........................................................................................................5
"Is the WTO Passé?", Bagwell et al. (2016)..................................................8
Section B2, "Evolution of PTAs: Stylized Facts,".........................................11
Section C2, "The Standard Economics of PTAs".........................................12
"What You Should Know about Globalization and the World Trade
Organization" by Deardorff and Stern........................................................14
Gains from Trade when Firms Matter by Melitz and Trefler.........................15
"Implications of Global Value Chains for Trade Policy," OECD....................17
The key literature on IB activities: 1960–2006. Dunning (2008)................20
The Eclectic Paradigm as an Envelope for Economic and Business Theories
of MNE Activity, Dunning (2000)................................................................22
Introduction to the Eclectic Paradigm, Tallman (2003)...............................26
"Theories of the Multinational Enterprise" by Hennart...............................28
"Location Choice Research: Proposing New Agenda" by Jain et al.............31
"Boundaries of the Firm: Insights from International Entry Mode Research"
by Brouthers and Hennart..........................................................................34
“International Establishment Mode Choice: Past, Present and Future” by
Dikova and Brouthers.................................................................................36
“Has Distance Died? Evidence from a Panel Gravity Model” by Brun et al.
...................................................................................................................38
“There Goes Gravity: eBay and the Death of Distance” by Lendle et al.. . .41
"Multinationals’ Response to Major Disasters: How Does Subsidiary
Investment Vary in Response to the Type of Disaster and the Quality of
Country Governance?" by Oh and Oetzel...................................................45
"The Impact of EU Preferential Trade Agreements on Foreign Direct
Investment" by Cardamone and Scoppola.................................................48
“Stakeholder Pressure on MNEs and the Transfer of Socially Irresponsible
Practices to Subsidiaries” by Surroca et al.................................................51
The Determinants of Tax Haven FDI, Jones & Temouri (2016)....................54
,The Political Economy of the World Trading
System, Hoekman and Kostecki (2001)
The authors present a comprehensive overview of the multilateral trading
system, particularly through the lens of the WTO. They explore the
foundational principles, functions, and political-economic complexities of
this system. The multilateral trading system is a mechanism for
international cooperation, where rules and norms create a structured
environment for negotiation and reduce uncertainty in global trade.
The Multilateral Trading System as a Cooperative Regime
The multilateral trading system is an institutionalized regime within
international relations, which political scientists define as “sets of implicit
or explicit principles, norms, rules, and decision-making procedures around
which expectations converge”. Given the lack of a global authority to
enforce international trade rules, this regime helps countries navigate
trade policy issues by establishing mutually agreed-upon expectations and
standards. This system is vital for fostering cooperation among sovereign
states by providing predictability and stability, which are essential for
maintaining a conducive trading environment.
Dual Functions of the Multilateral Trading System
The multilateral trading system serves two main purposes. First, it acts as
a forum for the exchange of trade policy commitments. This role allows
countries to negotiate reductions in trade barriers and set commitments to
liberalization, making it a central space for countries to communicate
national policy objectives and resolve potential trade disputes. The
system’s negotiation structure encourages mutual concessions, facilitating
a reciprocal reduction in trade barriers and fostering a positive-sum game
where all parties benefit.
The second major function of the system is to act as a code of conduct
that establishes behavioural norms for international trade. These rules are
primarily outlined in the General Agreement on Tariffs and Trade (GATT),
the General Agreement on Trade in Services (GATS), and the Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS). The code of
conduct constrains governments’ actions and trade policies, encouraging
accountability and limiting the freedom to engage in protectionist
measures that could harm the global trade order. The creation of these
codes represents a compromise that balances competing domestic
interests, protecting the system from being undermined by narrow political
agendas.
The System as a Forum for Exchange and Bargaining
One of the primary functions of the multilateral trading system is its role
as a marketplace for negotiations and exchanges. The WTO provides a
structured environment for countries to negotiate trade liberalization
commitments, enabling them to reduce tariffs and other barriers
,reciprocally. This process of negotiation and exchange is particularly
important in reducing what economists call “deadweight loss”—the
economic inefficiencies that arise when trade is restricted by tariffs,
quotas, or other barriers.
For small countries, which are typically price-takers in global markets, the
WTO offers substantial benefits. Such countries do not have the leverage
to influence international prices or terms of trade significantly and,
therefore, have the most to gain from open markets and reduced trade
barriers. While small countries may benefit from unilaterally lowering their
trade barriers, the additional benefits of a multilateral framework come
from securing similar concessions from larger economies. Through the
WTO, these smaller nations can negotiate better access to larger, more
competitive markets, which would otherwise be challenging to achieve
independently.
Large countries face a complex situation known as the prisoner’s dilemma.
They can potentially shift the terms of trade in their favour by imposing
restrictions, which can lead to a short-term advantage. However, if every
country followed this strategy, the global economy would suffer from
increased inefficiencies, reduced welfare, and stunted growth. The
prisoner’s dilemma suggests that while it may be in each country’s
interest to restrict trade to benefit certain industries, the collective
outcome would be a lower welfare level for all. This dilemma creates a
compelling reason for large countries to participate in multilateral
negotiations, as they can collectively achieve greater welfare through
trade liberalization than through protectionism. The system thus promotes
a positive-sum game, where reducing trade barriers benefits the world
economy as a whole.
Addressing the Political Economy of Trade Liberalization
Domestic political economy challenges complicate the process of trade
liberalization. While reducing trade barriers generally increases national
welfare, it also creates winners and losers within a country. Export-
oriented industries and consumers benefit from greater market access and
lower prices, but import-competing industries may suffer losses due to
increased competition. These industries tend to organize against trade
liberalization, as the costs of openness are more concentrated for them,
creating strong incentives to lobby for protectionist measures. Meanwhile,
the benefits of trade liberalization are often more diffuse across society,
making it harder for proponents of open trade to organize effectively.
The WTO’s system of reciprocal concessions provides a solution to this
challenge. By requiring countries to offer reciprocal trade concessions, the
system makes it politically feasible for governments to support
liberalization, as they can point to specific export gains that offset the
losses in import-competing industries. This reciprocity helps balance
competing domestic interests by enabling policymakers to justify trade
liberalization through the tangible benefits of expanded export
opportunities.
Core Principles of the Multilateral Trading System
, There are 5 core principles that underpin the multilateral trading system,
designed to ensure fairness, transparency, and predictability in global
trade:
1. Non-discrimination: This principle is composed of two key elements—
the Most Favoured Nation (MFN) rule and the National Treatment clause.
The MFN rule requires that a country extend the same favourable trade
terms (such as low tariffs) to all WTO members, ensuring that no single
country is discriminated against. The National Treatment clause
mandates that once foreign goods have entered a market, they must be
treated the same as domestic goods, preventing countries from using
domestic regulations as a form of indirect protectionism. Together,
these rules create a more level playing field and discourage countries
from imposing discriminatory trade policies.
2. Reciprocity: To prevent free-riding, the WTO operates on a principle of
reciprocity, where one country’s trade liberalization is matched by
others. This principle encourages a balance of interests, as countries
are incentivized to liberalize trade only when they receive equivalent
benefits. Reciprocity also helps politically, as governments can use the
promise of foreign market access to gain domestic support for lowering
trade barriers.
3. Enforceable Commitments: Commitments made under WTO
agreements are binding, and the system includes a structured dispute
resolution mechanism to address non-compliance. If a member raises
tariffs beyond agreed levels or implements policies that nullify their
commitments, other members can seek redress through this
mechanism. This binding nature provides a safeguard for smaller
nations, which can rely on the system to hold larger countries
accountable.
4. Transparency: Transparency is a fundamental principle in the WTO,
ensuring that countries clearly communicate their trade policies,
regulations, and any changes. Members are required to publish trade
regulations, respond to inquiries from other members, and report policy
updates to the WTO. Additionally, the WTO conducts periodic reviews,
called Trade Policy Reviews, of each member’s trade policies.
Transparency fosters a stable investment climate by reducing
uncertainty, which, in turn, encourages long-term business planning
and international cooperation.
5. Safety Valves: Recognizing that trade liberalization may sometimes be
at odds with other national interests, the WTO includes safety valves
that allow for trade restrictions under specific conditions. For example,
countries can impose temporary restrictions to protect public health,
national security, or to prevent serious injury to domestic industries.
These safety valves offer flexibility, enabling countries to pursue open
trade while managing domestic concerns.
The Multilateral Trading System in Practice
These principles and functions translate into practice through multilateral
trade negotiations. The MFN principle ensures that once a trade
concession is offered to one country, it is automatically extended to all
WTO members. This broad application of concessions simplifies
The Political Economy of the World Trading System, Hoekman and Kostecki
(2001)..........................................................................................................2
The World Trade Organization and the Future of Multilateralism, Baldwin
(2015)..........................................................................................................5
"Is the WTO Passé?", Bagwell et al. (2016)..................................................8
Section B2, "Evolution of PTAs: Stylized Facts,".........................................11
Section C2, "The Standard Economics of PTAs".........................................12
"What You Should Know about Globalization and the World Trade
Organization" by Deardorff and Stern........................................................14
Gains from Trade when Firms Matter by Melitz and Trefler.........................15
"Implications of Global Value Chains for Trade Policy," OECD....................17
The key literature on IB activities: 1960–2006. Dunning (2008)................20
The Eclectic Paradigm as an Envelope for Economic and Business Theories
of MNE Activity, Dunning (2000)................................................................22
Introduction to the Eclectic Paradigm, Tallman (2003)...............................26
"Theories of the Multinational Enterprise" by Hennart...............................28
"Location Choice Research: Proposing New Agenda" by Jain et al.............31
"Boundaries of the Firm: Insights from International Entry Mode Research"
by Brouthers and Hennart..........................................................................34
“International Establishment Mode Choice: Past, Present and Future” by
Dikova and Brouthers.................................................................................36
“Has Distance Died? Evidence from a Panel Gravity Model” by Brun et al.
...................................................................................................................38
“There Goes Gravity: eBay and the Death of Distance” by Lendle et al.. . .41
"Multinationals’ Response to Major Disasters: How Does Subsidiary
Investment Vary in Response to the Type of Disaster and the Quality of
Country Governance?" by Oh and Oetzel...................................................45
"The Impact of EU Preferential Trade Agreements on Foreign Direct
Investment" by Cardamone and Scoppola.................................................48
“Stakeholder Pressure on MNEs and the Transfer of Socially Irresponsible
Practices to Subsidiaries” by Surroca et al.................................................51
The Determinants of Tax Haven FDI, Jones & Temouri (2016)....................54
,The Political Economy of the World Trading
System, Hoekman and Kostecki (2001)
The authors present a comprehensive overview of the multilateral trading
system, particularly through the lens of the WTO. They explore the
foundational principles, functions, and political-economic complexities of
this system. The multilateral trading system is a mechanism for
international cooperation, where rules and norms create a structured
environment for negotiation and reduce uncertainty in global trade.
The Multilateral Trading System as a Cooperative Regime
The multilateral trading system is an institutionalized regime within
international relations, which political scientists define as “sets of implicit
or explicit principles, norms, rules, and decision-making procedures around
which expectations converge”. Given the lack of a global authority to
enforce international trade rules, this regime helps countries navigate
trade policy issues by establishing mutually agreed-upon expectations and
standards. This system is vital for fostering cooperation among sovereign
states by providing predictability and stability, which are essential for
maintaining a conducive trading environment.
Dual Functions of the Multilateral Trading System
The multilateral trading system serves two main purposes. First, it acts as
a forum for the exchange of trade policy commitments. This role allows
countries to negotiate reductions in trade barriers and set commitments to
liberalization, making it a central space for countries to communicate
national policy objectives and resolve potential trade disputes. The
system’s negotiation structure encourages mutual concessions, facilitating
a reciprocal reduction in trade barriers and fostering a positive-sum game
where all parties benefit.
The second major function of the system is to act as a code of conduct
that establishes behavioural norms for international trade. These rules are
primarily outlined in the General Agreement on Tariffs and Trade (GATT),
the General Agreement on Trade in Services (GATS), and the Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS). The code of
conduct constrains governments’ actions and trade policies, encouraging
accountability and limiting the freedom to engage in protectionist
measures that could harm the global trade order. The creation of these
codes represents a compromise that balances competing domestic
interests, protecting the system from being undermined by narrow political
agendas.
The System as a Forum for Exchange and Bargaining
One of the primary functions of the multilateral trading system is its role
as a marketplace for negotiations and exchanges. The WTO provides a
structured environment for countries to negotiate trade liberalization
commitments, enabling them to reduce tariffs and other barriers
,reciprocally. This process of negotiation and exchange is particularly
important in reducing what economists call “deadweight loss”—the
economic inefficiencies that arise when trade is restricted by tariffs,
quotas, or other barriers.
For small countries, which are typically price-takers in global markets, the
WTO offers substantial benefits. Such countries do not have the leverage
to influence international prices or terms of trade significantly and,
therefore, have the most to gain from open markets and reduced trade
barriers. While small countries may benefit from unilaterally lowering their
trade barriers, the additional benefits of a multilateral framework come
from securing similar concessions from larger economies. Through the
WTO, these smaller nations can negotiate better access to larger, more
competitive markets, which would otherwise be challenging to achieve
independently.
Large countries face a complex situation known as the prisoner’s dilemma.
They can potentially shift the terms of trade in their favour by imposing
restrictions, which can lead to a short-term advantage. However, if every
country followed this strategy, the global economy would suffer from
increased inefficiencies, reduced welfare, and stunted growth. The
prisoner’s dilemma suggests that while it may be in each country’s
interest to restrict trade to benefit certain industries, the collective
outcome would be a lower welfare level for all. This dilemma creates a
compelling reason for large countries to participate in multilateral
negotiations, as they can collectively achieve greater welfare through
trade liberalization than through protectionism. The system thus promotes
a positive-sum game, where reducing trade barriers benefits the world
economy as a whole.
Addressing the Political Economy of Trade Liberalization
Domestic political economy challenges complicate the process of trade
liberalization. While reducing trade barriers generally increases national
welfare, it also creates winners and losers within a country. Export-
oriented industries and consumers benefit from greater market access and
lower prices, but import-competing industries may suffer losses due to
increased competition. These industries tend to organize against trade
liberalization, as the costs of openness are more concentrated for them,
creating strong incentives to lobby for protectionist measures. Meanwhile,
the benefits of trade liberalization are often more diffuse across society,
making it harder for proponents of open trade to organize effectively.
The WTO’s system of reciprocal concessions provides a solution to this
challenge. By requiring countries to offer reciprocal trade concessions, the
system makes it politically feasible for governments to support
liberalization, as they can point to specific export gains that offset the
losses in import-competing industries. This reciprocity helps balance
competing domestic interests by enabling policymakers to justify trade
liberalization through the tangible benefits of expanded export
opportunities.
Core Principles of the Multilateral Trading System
, There are 5 core principles that underpin the multilateral trading system,
designed to ensure fairness, transparency, and predictability in global
trade:
1. Non-discrimination: This principle is composed of two key elements—
the Most Favoured Nation (MFN) rule and the National Treatment clause.
The MFN rule requires that a country extend the same favourable trade
terms (such as low tariffs) to all WTO members, ensuring that no single
country is discriminated against. The National Treatment clause
mandates that once foreign goods have entered a market, they must be
treated the same as domestic goods, preventing countries from using
domestic regulations as a form of indirect protectionism. Together,
these rules create a more level playing field and discourage countries
from imposing discriminatory trade policies.
2. Reciprocity: To prevent free-riding, the WTO operates on a principle of
reciprocity, where one country’s trade liberalization is matched by
others. This principle encourages a balance of interests, as countries
are incentivized to liberalize trade only when they receive equivalent
benefits. Reciprocity also helps politically, as governments can use the
promise of foreign market access to gain domestic support for lowering
trade barriers.
3. Enforceable Commitments: Commitments made under WTO
agreements are binding, and the system includes a structured dispute
resolution mechanism to address non-compliance. If a member raises
tariffs beyond agreed levels or implements policies that nullify their
commitments, other members can seek redress through this
mechanism. This binding nature provides a safeguard for smaller
nations, which can rely on the system to hold larger countries
accountable.
4. Transparency: Transparency is a fundamental principle in the WTO,
ensuring that countries clearly communicate their trade policies,
regulations, and any changes. Members are required to publish trade
regulations, respond to inquiries from other members, and report policy
updates to the WTO. Additionally, the WTO conducts periodic reviews,
called Trade Policy Reviews, of each member’s trade policies.
Transparency fosters a stable investment climate by reducing
uncertainty, which, in turn, encourages long-term business planning
and international cooperation.
5. Safety Valves: Recognizing that trade liberalization may sometimes be
at odds with other national interests, the WTO includes safety valves
that allow for trade restrictions under specific conditions. For example,
countries can impose temporary restrictions to protect public health,
national security, or to prevent serious injury to domestic industries.
These safety valves offer flexibility, enabling countries to pursue open
trade while managing domestic concerns.
The Multilateral Trading System in Practice
These principles and functions translate into practice through multilateral
trade negotiations. The MFN principle ensures that once a trade
concession is offered to one country, it is automatically extended to all
WTO members. This broad application of concessions simplifies
