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Who Makes the Rules of Globalization?

Author

Listed:
  • Alan V. Deardorff
Abstract
In this paper I argue that profit-maximizing firms, even though they contribute to social welfare when they compete in the market, may not do so when they influence the political process. In particular, I suggest, through several examples from both the real world and from economic theory, that corporations have played a significant role in the formulation of the rules of the international trading system. They did this in the formation of the WTO, where they were responsible for the expansion to cover both intellectual property and services. And they do this in preferential trading arrangements such as the NAFTA, where they inserted the notorious Chapter 11 and specified rules of origin for automotive products. All of this is quite consistent with economic theory, including the literature on the political economy of trade policy. I also use a simple duopoly model to illustrate a domestic firm’s interest in setting rules of origin. The corporate influence on rules need not be bad, but there is no reason why it should be good either, as these examples illustrate.

Suggested Citation

  • Alan V. Deardorff, 2004. "Who Makes the Rules of Globalization?," CESifo Working Paper Series 1301, CESifo.
    • Handle: RePEc:ces:ceswps:_1301
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1301.pdf
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    References listed on IDEAS

    as
    1. André Sapir & Richard Baldwin & Daniel Cohen & Anthony Venables, 1999. "Market integration, regionalism and the global economy," ULB Institutional Repository 2013/8074, ULB -- Universite Libre de Bruxelles.
    2. repec:bla:econom:v:59:y:1992:i:233:p:35-51 is not listed on IDEAS
    3. Pravin Krishna, 1998. "Regionalism and Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 227-251.
    4. repec:fth:michin:415 is not listed on IDEAS
    5. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.
    6. Deardorff, A.V, 1990. "Should Patent Protection Be Extended To All Countries?," Working Papers 259, Research Seminar in International Economics, University of Michigan.
    7. Alan V. Deardorff, 1990. "Should Patent Protection Be Extended to All Developing Countries?," The World Economy, Wiley Blackwell, vol. 13(4), pages 497-508, December.
    8. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-690, September.
    9. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    10. Deardorff, A.V. & Hall, R., 1997. "Explaining the Role of Interest Groups in United States Trade Policy," Working Papers 415, Research Seminar in International Economics, University of Michigan.
    11. repec:fth:michin:259 is not listed on IDEAS
    12. Alan V. Deardorff, 2011. "What Might Globalisation's Critics Believe?," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 30, pages 371-390, World Scientific Publishing Co. Pte. Ltd..
    13. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
    14. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-144, Fall.
    15. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-519, September.
    16. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494, Elsevier.
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    Citations

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    Cited by:

    1. Alan V. Deardorff, 2007. "Trade Policy Options for Korea Trade Policy Options for Korea Outside the Doha Round Outside the Doha Round," Working Papers 568, Research Seminar in International Economics, University of Michigan.
    2. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo.
    3. Medalla, Erlinda M. & Lazaro, Dorothea C., 2006. "Rules of Origin: Evolving Best Practices for RTAs/FTAs," Discussion Papers DP 2006-01, Philippine Institute for Development Studies.
    4. Roberta Benini & Michael Plummer, 2008. "Regionalism and multilateralism: crucial issues in the debate on RTAs," Economic Change and Restructuring, Springer, vol. 41(4), pages 267-287, December.

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    More about this item

    Keywords

    political economy of trade; trade institutions; globalisation; globalization;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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