A di¤erent approach to this question is taken by Bagwell and Staiger (2011). They use the terms-of-trade theory to derive an expression for the component of the noncooperative tari¤ that embodies the international cost-shifting motive. They then use this expression to derive the pattern of negotiated tari¤ cuts that is implied by the terms-of-trade theory; intuitively, if the cost-shifting component is big, then the negotiated tari¤ cut implied by the terms-of-trade theory should be large. Working from this basic insight, Bagwell and Staiger show that the tari¤cuts predicted by the terms-of-trade theory can be expressed as a function of pre-negotiation import volumes and prices, and measures of the power to a¤ect world prices. The predicted relationship is then confronted with data from the accession negotiations of 16 countries that joined the WTO subsequent to its creation in 1995, and strong and robust support for the predictions of the terms-of-trade theory are found in the observed pattern of negotiated tari¤ concessions.

Ludema and Mayda (2013) advance the literature on this question by allowing that free-rider issues associated with the MFN principle (which we discuss at length further below) might impede governments from fully addressing terms-of-trade manipulation in their GATT/WTO tari¤ negotiations. Augmenting the basic terms-of-trade model with a model of endogenous bargaining participation, they show that negotiated tari¤s should be negatively related to the product of the importer’s market power and exporter concentration. Intuitively, the lower is exporter concentration, the more severe will be the free-rider problem associated with MFN, and the less e¤ective negotiations will be in ridding the tari¤ of its cost-shifting component; and the larger the market power, the larger this cost-shifting component will be. Ludema and Mayda take this prediction to the tari¤ data for 30 WTO-member countries and ...nd strong support, concluding (p. 1837) that “...the internalization of terms of trade e¤ects through WTO negotiations has lowered the average tari¤ of these countries by 22% to 27% compared to its noncooperative level.” Yet a di¤erent perspective on answering this question is provided by Bown and Crowley (2013a), who investigate empirically some of the predictions of the terms-of-trade theory when that theory is developed in a repeated-tari¤-game setting subject to stochastic trade volume shocks and where selfenforcement constraints are binding.<sup>35</sup> A basic prediction of the terms-of-trade theory in this setting is that, where the self-enforcement constraint is binding, cooperative tari¤s must rise somewhat in the face of import surges in order to mitigate the increased temptation implied by the higher import volume to shift costs onto foreign exporters with an even higher tari¤. Among the additional predictions of the model highlighted by Bown and Crowley is that, for a given import surge, a cooperative tari¤ increase is more likely on a product if the market power possessed by the importing government on that product is higher. Utilizing data on the time-varying protective measures (anti-dumping and safeguard actions) of the US over the period 1997-2006, the authors con...rm these and other predictions of the terms-of-trade theory in this setting.

Summarizing, the empirical papers surveyed above provide a growing body of evidence consistent with the central tenets of the terms-of-trade theory of trade agreements. While we discuss

> 35 Bagwell and Staiger (1990) develop this model, which we describe further along with further discussion of the ...ndings of Bown and Crowley (2013a) in Section 4.2.

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