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Title: Coercive Trade Policy

Author(s): Vincent Anesi and Giovanni Facchini

Publication Date: July 2015

Keyword(s): Dispute Settlement, GATT, Political Economy and WTO

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Anesi, V and Facchini, G. 2015. 'Coercive Trade Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10687