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Preventing protectionism: International institutions and trade policy

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Abstract

This paper examines the role of international institutions in preventing the rise of protectionism. We analyze states’ choices in trade policy during the current global economic crisis, a situation likely to exacerbate uncertainty in the conduct of commercial relations and to push countries toward “beggar-thy-neighbor” trade policies. The main argument of the paper is that the numerous international institutions present in the international system during the current economic crisis serve as conveyors of information and mechanisms of commitment and socialization. They mitigate the uncertainty problem that prevails in prisoner’s dilemma settings such as trade. Economic international organizations increase the flow of information about the preferences and behaviors of its members. Non-economic organizations also have a role to play as social environments that encourage cooperation. Specialized international institutions devoted to trade, such as the WTO and preferential trade agreements (PTAs), not only provide monitoring and enforcement functions but also lock in commitments to liberal trade through legal obligations that make defections costly. We test our argument using a dataset of trade policies during the current economic crisis and of membership in international organizations. The paper finds strong support for the role of international institutions as commitment and socialization mechanisms in preventing the rise of protectionism.

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Notes

  1. Tomz cites the function of Lex Mercatoria, or Law Merchant, that facilitated the conduct of commerce in medieval Europe by keeping track of merchants that “cheated” in transactions and those that remained “reliable” (239–240).

  2. http://www.oecd.org/document/41/0,3343,en_2649_34887_44939305_1_1_1_1,00.html. Accessed 1 September 2010.

  3. See http://www.wto.org/english/news_e/news09_e/trdev_14sep09_e.htm; http://www.wto.org/english/news_e/news10_e/igo_04nov10_e.htm and http://www.wto.org/english/news_e/news11_e/igo_24may11_e.htm. Accessed 22 August 2011.

  4. http://www.oecd.org/document/41/0,3343,en_2649_34887_44939305_1_1_1_1,00.html. Accessed 1 September 2010.

  5. WT/TPR/OV/12 (18 November 2009).

  6. The report includes sections tariffs, trade remedy measures, sanitary and phytosanitary (SPS) measures, technical barriers to trade (TBT), measures affecting trade in services, trade policy reviews, and regional trade agreements.

  7. As of this writing, five reports have been issued since the onset of the crisis, the latest in June 2011 (WT/TPR/OV/W/5). See also previous reports: WT/TPR/OV/W/1-4.

  8. http://www.unctad.org/en/docs/ditctab20102_en.pdf. Accessed 29 March 2011.

  9. http://www.oecd.org/document/62/0,3746,en_2649_37431_45289662_1_1_1_37431,00.html; http://www.oecd.org/dataoecd/58/57/45293795.pdf. Accessed 29 March 2011.

  10. The authors are grateful to Paul Ingram for sharing data on IGOs for analysis in this paper. IGOs are classified as i) general purpose; ii) military/political; iii) economic; and iv) social and cultural (Ingram et al. 2005, 854)

  11. We exclude IGOs on standardization and harmonization as they are not directly relevant to protectionism. The analysis includes economic IGOs such as the following (among others): the European Patent Office, the East Caribbean Currency Area, the East African Common Market, the Caribbean Development Bank, the Indian Ocean Commission, the International Wheat Council, the International Pepper Community, and the Inter-American Federation of Cotton.

  12. For a similar distinction, see Mansfield and Pevehouse (2008).

  13. Note: the majority of protectionist policies affects more than one country. Accordingly, these multilateral protectionist policies are broken down to the dyadic level. See the literature on trade agreements for a similar approach (Mansfield et al. 2002).

  14. Data are available at www.globaltradealert.org.

  15. GTA marks each measure in red if it certainly discriminates against foreign commercial interests; in amber if it is likely to discriminate against foreign commercial interests; in green if it involves liberalization. We do not include green measures in the analysis.

  16. Bombardier Inc. is Canada’s largest aircraft producer and the third-largest civilian aircraft producer in the world. It employs approximately 17,000 people in Canada.

  17. Delitzscher Schokoladen GmbH was originally established in 1894 and its main customers are numerous German food retail chains as well as European and international trade companies.

  18. Italy and UK are in the 19th and 20th positions, respectively. However, they are below countries such as Kazakhstan, Australia, Turkey, South Africa, Japan, and South Korea.

  19. See The Economist, January 2nd-8th 2010, page 26.

  20. Several measures are categorized by GTA as “state aid in the form of direct grants, loans, interest rate subsidies, and guarantees.” In drawing Fig. 3, we include them in the category “state aid.”

  21. We took a conservative approach in designating economic IGOs. For instance, in contrast to other studies (Cao 2009), we do not classify as economic IGOs organizations devoted to rules on standardization or industry-specific IGOs.

  22. Though other, perhaps even more prominent, economic IGOs exist, such as the IMF, the World Bank, and UNCTAD, these organizations are international organizations with virtually world-wide membership. As a consequence, there is little to no variation in the membership variable for these organizations, which renders them less useful for empirical analysis.

  23. Some dyads form more than one PTA mainly because member countries deepen an existing agreement, e.g., the EU. Our coding does not capture this event, i.e., our operationalization is strictly dichotomous.

  24. We use Ehrlich’s model (2007) as the baseline model.

  25. Results do not change if we replace Polity IV with data from Freedom House, another widely used indicator of the type of regime.

  26. Data are available up to 2009.

  27. The online Appendix is available at this journal’s website.

  28. The nbvargr test (Stata 11) shows that over-dispersion is statistically significant at the 99% level.

  29. The zero-inflated negative binomial regression is seldom used in political science. For an application in economics, see Lamber (1992).

  30. As one reviewer recommended, ideally we would like to control for countercyclical macroeconomic policies such as discretionary fiscal stimulus relative to GDP or the short-term interest rate. However, these indicators are available only for a small number of countries.

  31. We hold the rest of the right-hand side variables constant at their median. The Stata 11 command margins was used to calculate these effects.

  32. As noted earlier, OECD and ICSID are not included among the Economic IGOs, and their effects are estimated separately.

  33. http://www.bilaterals.org/spip.php?rubrique159. Accessed 20 August 2011.

  34. http://fta.icrindia.org/india-ftas/asean-india-fta.html. Accessed 20 August 2011.

  35. Figure A2 in the online Appendix shows the balance of covariates when PTA is the treatment. Results are similar when WTO is the treatment.

  36. The Breusch et al. (1999) test rejects the hypothesis that our instruments are redundant (p = 0.00).

  37. We report the results of the poisson-logit hurdle regression, which are similar to the negative binomial-logit hurdle regression.

  38. The crisis problem was one of the dominant features of the 1990s: the EMS crisis of 1992–3, the Tequila crisis of 1994–5, the Asian crisis of 1997–8, the Brazilian crisis of 1998–9, and the Russia-LTCM affair.

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Authors and Affiliations

  1. Niehaus Center for Globalization and Governance (NCGG), Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, NJ, 08544, USA

    Leonardo Baccini

  2. Department of Political Science, National University of Singapore, AS1, #04-10, 11 Arts Link, Singapore, 117570, Singapore

    Soo Yeon Kim

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  1. Leonardo Baccini
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Correspondence to Soo Yeon Kim.

Additional information

The authors are grateful to Ju-Hyung (Josh) Lim for excellent and timely research assistance on this project and to Paul Ingram for providing data on the categorization of intergovernmental organizations. For comments on previous versions of this paper, we are grateful to Christina Davis, Axel Dreher, Andreas Dür, Manfred Elsig Martin Gassebner, Julia Gray, Yuch Kono, Krzysztof Pelc, Stephanie Rickard, and two anonymous reviewers. This paper has also benefited from feedback at the annual meetings of the Political Economy of International Organizations (PEIO), January 27–29, 2011, Zurich, Switzerland; the International Studies Association, 16–19 March, 2011, Montreal, Canada; and the American Political Science Association, 1–4 September 2011, Seattle, USA.

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Baccini, L., Kim, S.Y. Preventing protectionism: International institutions and trade policy. Rev Int Organ 7, 369–398 (2012). https://doi.org/10.1007/s11558-011-9140-7

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