Article first published online: 13 FEB 2013
© 2013 Blackwell Publishing Ltd
The World Economy
Volume 36, Issue 2, pages 155–179, February 2013
How to Cite
Dluhosch, B. and Horgos, D. (2013), (When) Does Tit-for-tat Diplomacy in Trade Policy Pay Off?. World Economy, 36: 155–179. doi: 10.1111/twec.12012
Notably, this does not apply to what has been dubbed by Bhagwati (1990, 1312 et seq.) ‘aggressive unilateralism’, that is, the threat of a country to close its markets for foreign competitors in order to extract trade ’concessions’ from the other country. See also Silverman (1996) for a critical evaluation.
- Issue published online: 13 FEB 2013
- Article first published online: 13 FEB 2013
In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of self-enforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. Highlighting various strategies in a partial equilibrium framework, we show that retaliation of non-cooperative behaviour by limiting market access works as a disciplining device quite independently of supply and demand parameters. Our empirical findings are consistent with the theoretical results in that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.