DP12703 What Do Trade Agreements Really Do?

Author(s): Dani Rodrik
Publication Date: February 2018
Keyword(s): Free Trade Agreements
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12703

As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization, they have become more difficult to fit into received economic theory. Nevertheless, most economists continue to regard trade agreements such as the Trans Pacific Partnership (TPP) favorably. The default view seems to be that these arrangements get us closer to free trade by reducing transaction costs associated with regulatory differences or explicit protectionism. An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms - international banks, pharmaceutical companies, multinational firms. They may result in freer, mutually beneficial trade, through exchange of market access. But they are as likely to produce purely redistributive outcomes under the guise of "freer trade."