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

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

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

Strategic trade policy and the threat of regionalism

We examine the formation of trade agreements when markets are characterized by imperfect competition and governments can alter the strategic interaction between oligopolistic firms through the use of import tariffs and export subsidies. Using a simple three-country model of intra-industry trade, we show that whether preferential trade agreements are stepping stones or stumbling blocs towards the attainment of multilateral cooperation depends on the degree of product di¤erentiation and industry concentration. However, when import tariffs are the only available policy instrument, global free trade is always sustainable. Our analysis provides a rationale for the recent attempts to strengthen international rules against the use of export subsidies. It also suggests that focusing on one dimension of strategic interaction only might result in drawing incorrect conclusions about the outcome of the trade negotiations

Trade bloc formation under imperfect competition

We examine the endogenous formation of trade blocs when markets are characterized by imperfect competition and governments use import tariffs and export subsidies to alter the strategic interactions between oligopolistic firms. Using a simple model of intra-industry trade between three ex-ante symmetric countries, we find that, while 'pure' customs unions - entailing tariff cooperation only - are stepping stones towards global free trade, 'impure' customs unions - involving the coordinated use of both tariffs and subsidies - are stumbling blocs against it. Our analysis suggests that an international ban on export subsidies could held to sustain global free trade

Green and producer lobbies: enemies or allies?

In this paper we employ a common agency model to study the role of green and producer lobbies in the determination of trade and environmental policies. We focus on two large countries that are linked by trade flows and transboundary pollution externalities. We show that the nature of the relationship between lobbies and the relative efficiency of unilateral and cooperative policy outcomes depend crucially on three factors: the type of policy regime, whether governments act unilaterally or cooperatively, and the extend of the 'pollution leakages'

Can green lobbies replace a world environmental organization?

We employ a common agency model to examine how green lobbies affect the determination of trade and environmental policy in two large countries that are linked through trade flows and transboundary pollution. We show that, when governments are not restricted in their ability to use trade barriers, environmental lobbying always results in higher pollution taxes relative to a no-lobbying scenario. Consequently, uncoordinated environmental policies are closer to the effcient Pigouvian solution than internationally coordinated policies. If, however, governments are bound by international trade rules, green lobbies may bias environmental policies downwards and environmental policy coordination is unambiguously effciency-enhancing

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