Template-Type: ReDIF-Paper 1.0
Author-Name: Richard Chisik
Author-X-Name-First: Richard
Author-X-Name-Last: Chisik
Author-Email: rchisik@economics.ryerson.ca 
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Title: Trade Disputes, Quality Choice, and Economic Integration
Abstract: Recent work demonstrates the importance of developing high quality output in order to
compete in export markets and other recent studies verify the prevalence of fixed and ongoing trade costs
while participating in those markets. I consider the joint choice of quality and export promotion costs
when trade relationships are subject to temporary disputes. When transparency is low and
macroeconomic instability is high, disputes arrive more frequently and, therefore, firms may inefficiently
choose lower levels of quality and export promotion. These, in turn, build shallower trading relationships
with less trade volumes and higher tariffs, and generate greater trade reductions during the more common
trade disputes. Several institutional features of the WTO that are generally lacking in preferential trade
agreements such as improved transparency, dispute investigation, and the provision to recommend
asymmetric continuation payoffs can ameliorate these inefficient quality choice outcomes. Hence, lower
quality output and lower quality trading relationships may be more endemic to countries that depend on
preferential trading areas as opposed to the WTO.
Classification-JEL: F13, F15, C73, K33.
Keywords: Quality Choice, Irreversibilities, Economic Integration Dispute Settlement, Dynamic
Games, WTO, Preferential Trade Agreements.
Length: 42 pages
Creation-Date: 2010-08
Number: 022
File-URL: http://economics.ryerson.ca/workingpapers/wp022.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp022