Conditionality, separation, and open rules in multilateral institutions

We examine the implications for the viability of multilateral cooperation of different legal principles governing how separate international agreements relate to each other. We contrast three alternative legal regimes: conditionality - making cooperation in one area a condition for cooperation in another - separation - forbidding sanctions in one area to be used to enforce cooperation in others - and open rules, i.e. absence of any restriction on the patterns of cross-issue cooperation arrangements and sanctions. As an example, we focus on a scenario where countries can enter into selective and separate binding trade and environmental agreements with different partners. Our analysis suggests that conditionality is more likely to facilitate multilateral, multi-issue cooperation in situations where the environmental policy stakes are small relative to the welfare effects of trade policies; when the costs of environmental compliance are high, a conditionality rule can hinder multilateral cooperation. Separation can undermine cooperation by limiting punishment, but can also promote broad cooperation by making partial cooperation more diffcult to sustain. Thus, how different linkage regimes affect multilateral negotiations depends on the structure of cooperation incentives for the countries involved

Issue Linkage and Issue Tie-in in Multilateral Negotiations

We describe a model of international, multidimensional policy coordination where countries can enter into selective and separate agreements with different partners along different policy dimensions. The model is used to examine the implications of negotiation tie-in - the requirement that agreements must span multiple dimensions of interaction - for the viability of multilateral cooperation when countries are linked by international trade flows and transboundary pollution. We show that, while in some cases negotiation tie-in has either no effect or can make multilateral cooperation more viable, in others a formal tie-in constraint can make an otherwise viable joint multilateral agreement unstable.international cooperation, trade and environmental policy negotiations

Many multinationals may pull out of the UK if it leaves the Customs Union

As March 2019 draws closer, the UK government remains divided over the type of trade relationship it wants to achieve in the ongoing negotiations with the EU. Paola Conconi (ULB/LSE) explains why Japanese multinationals may pull out of the UK in case of a hard Brexit, one which would mean there is no kind of customs union with the EU

Women's Earning Power and the "Double Burden" of Market and Household Work

Bargaining theory suggests that married women who experience a relative improvement in their labour market position should experience a comparative gain within their marriage. However, if renegotiation possibilities are limited by institutional mechanisms that achieve long-term commitment, the opposite may be true, particularly if women are specialized in household activities and the labour market allows comparatively more flexibility in their labour supply responses. Evidence from the German Socio-Economic Panel indeed shows that, as long as renegotiation opportunities are limited, comparatively better wages for women exacerbate their 'double burden' of market and household work.bargaining, marriage and renegotiation

Intergenerational Mobility of Migrants : Is There a Gender Gap?

We examine gender differences in intergenerational patterns of social mobility for second-generation migrants. Empirical studies of social mobility have found that women are generally more mobile than men. Matching theory suggests that this may be because the importance of market characteristics (financial wealth and earning power) relative to non-market characteristics in the marriage market is lesser for women than men, and market characteristics can be intergenerationally more persistent than non-market characteristics. According to this interpretation, the mobility gender gap should be wider for second-generation migrant households, where gender roles remain more pronounced than in the non-migrant population. We explore this conjecture using data from the US General Social Survey. Our results show that daughters of first-generation migrants are intergenerationally more mobile than migrant’s sons, and more so than it is the case for non-migrants’ children.Marriage ; Migrants ; Social Mobility

The internationalization process of firms : From exports to FDI ?

We describe a simple model in which domestic firms decide whether to serve a foreign market through exports or horizontal foreign direct investment (FDI). This choice involves a trade-off between the higher variable trade costs associated with exports and the higher fixed set-up costs associated with establishing foreign subsidiaries. Crucially, firms are uncertain about their profitability in foreign markets and can only learn it by operating there. To obtain market-specific knowledge, firms may follow an “internationalization process”, serving the foreign market via exports first and eventually, in some cases, switching to local subsidiary sales. To assess the validity of the predictions of our model, we use firm-level data on export and FDI decisions in individual destination markets for all companies registered in Belgium over the period 1997-2008. We show that firms’ strategies to serve foreign markets depend not only on the variable and fixed costs associated with exports and FDI, but also on the export experience they have acquired in that market.Exports, FDI, Uncertainty, Experimentation

Policymakers’ Horizon and Trade Reforms

Does policymakers\' horizon affect their willingness to support economic reforms? Voting in the U.S. Congress provides an ideal setting to address this question. Differences between the House and Senate, in which members serve two-year and six-year mandates respectively, allow to examine the role of term length; the staggered structure of the Senate allows to compare the behavior of different \"generations\" of senators and study the impact of election proximity. Considering all major trade liberalization reforms undertaken by the U.S. since the early 1970\'s, we find that Senate members are more likely to support them than House members. However, inter-cameral differences disappear for third-generation senators, who face re-election at the same time as House members. Considering Senate votes alone, we find that the last generation is more protectionist than the previous two and this result holds both when comparing different senators voting on the same bill, as well as individual senators voting on different bills. Inter-generational differences disappear instead for senators who hold safe seats or have announced their retirement, indicating that the protectionist effect of election proximity is driven by legislators\' fear of losing office.Term Length, Election Proximity, Trade Reforms

Fast Track Authority and International Trade Negotiations

Fast Track Authority (FTA) is the institutional procedure in the Unites States whereby Congress grants to the President the power to negotiate international trade agreements. Under FTA, Congress can only approve or reject negotiated trade deals, with no possibility of amending them. In this paper, we examine the determinants of FTA voting decisions and the implications of this institutional procedure for trade negotiations. We describe a simple two-country trade model, in which industries are unevenly distributed across constituencies. In the foreign country, trade negotiating authority is delegated to the executive, while in the home country Congress can retain the power to amend trade agreements. We show that legislators’ FTA voting behavior depends on the trade policy interests of their own constituencies as well as those of the majority of Congress. Empirical analysis of the determinants of all FTA votes between 1974 (when fast track was first introduced) and 2002 (when it was last granted) provides strong support for the predictions of our model.Fast Track Authority, Trade Negotiations, Strategic Delegation

Self-Enforcing International Agreements and Domestic Policy Credibility

We explore the relationship between international policy coordination and domestic policy credibility when both must be self-supporting. Our arguments are presented in the context of a two-country, two-period model of dynamic emission abatement with transboundary pollution, where government policies suffer from a time-consistency problem. In the absence of repeated interaction, any form of coordination - between governments, and between governments and their respective private sectors - improves policy making. Nevertheless, under repeated interaction international policy spillovers can make it possible to overcome the domestic credibility problem; and, conversely, the inability to precommit to policy domestically can help support international policy cooperation.policy commitment, self-enforcing international agreements

Trade Liberalization and Organizational Change

We embed a simple incomplete-contracts model of organization design in a standard two-country perfectly-competitive trade model to examine how the liberalization of product and factor markets affects the ownership structure of firms. In our model, managers decide whether or not to integrate their firms, trading off the pecuniary benefits of coordinating production decisions with the private benefits of operating in their preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits. In particular, non-integration is chosen at “low” and “high” prices, while integration occurs at moderate prices. Organizational choices also depend on the terms of trade in supplier markets, which affect the division of surplus between managers. We obtain three main results. First, even when firms do not relocate across countries, the price changes triggered by liberalization of product markets can lead to significant organizational restructuring within countries. Second, the removal of barriers to factor mobility can lead to inefficient reorganization and adversely affect consumers. Third, “deep integration” the liberalization of both product and factor markets ­ leads to the convergence of organizational design across countries.Firms, Contracts, Globalization