Research

Why the WTO? An Introduction to the Economics of Trade Agreements

April 2013
With Henrik Horn; in Legal and Economic Principles of World Trade Law, ed. Henrik Horn and Petros Mavroidis; Cambridge University Press
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Instead, the governments could practice unilateral free trade and otherwise let goods flow where they may. The fact that governments actively pursue a myriad of policies that alter the incentives to trade already suggests that their goals are more nuanced. The very complexity of the GATT suggests that multiple objectives are at play and that governments’ motives are not obvious. This observation is compounded by the apparent incongruity between standard economic arguments in favor of completely free trade and the manner in which governments approach their negotiations under the umbrella of the GATT. Evidently, clarifying the underlying purpose(s) of the GATT and articulating a reason for the GATT to exist is not as simple a task as it might first appear. In what follows, we will present and critically discuss the standard approach in economics to explaining the rationale for agreements such as the GATT.