Events

Professor Arnaud Costinot

We use global tariffs to reveal the weights that nations implicitly place on the welfare of their trading partners relative to their own. Our estimated welfare weights suggest that formal and informal rules of the world trading system make countries internalize the impact of their policies onto others to a substantial extent, though not fully. On average, countries place 19% less value on transfers to foreigners than transfers to their own residents. Across nations, we find that countries that put more weights on the welfare of foreigners also tends to receive higher welfare weights from them. Our results are consistent with international cooperation being sustained by a general form of reciprocity among nations: cooperative behavior by one country, in the form
of a higher welfare weight, is reciprocated with cooperative behavior by its partner, also in the form of a higher welfare weight. This is true both within and outside the World Trade Organization.