We argue that a trade agreement which conforms to GATT's reciprocity rule benefits the (stronger) less trade-dependent country at the expense of the (weaker) more trade-dependent country. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash-bargaining solution, a "power-based" approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger's (1999, 2000) view of reciprocity as a rule that "serves to mitigate the influence of power asymmetries on negotiated outcomes."
ASJC Scopus subject areas
- Geography, Planning and Development