Essays On International Trade Agreements Under Monopolistic Competition

This chapter shows that both claims fail to hold when countries have subsidies for the marginal cost of production and subsidies for firm entry. The source of inefficiency is countries free-riding off of each other's entry subsidies. A market access rule that preserves both a trading partner's home volume and export volume can prevent opportunism in domestic policy choices. The results suggest that the rise of trade in imperfect competition was a factor in limiting the effectiveness of the 1947 GATT rules, long before other challenges for the world trading system like offshoring became predominant.