Description
How do states with different political and economic structures negotiate economic cooperation, and how does it affect their economic relationship? This paper examines a peculiar case study from the Cold War: 4 Socialist countries (Yugoslavia, Poland, Romania and Hungary) became signatories of the General Agreement on Tariffs and Trade (GATT) between 1966 and 1973. Despite GATT being an explicitly Capitalist trade treaty, these Socialist states, which were operating under fundamentally different foreign trade mechanisms, could successfully join.
Using a structural gravity model and a new bilateral trade dataset, the results suggest that the signing of GATT is associated with a 48–56 per cent increase in export volume. However, the paper finds modest welfare gains for these countries, which can be explained by their comparatively closed economies and other barriers to trade beyond tariffs. Due to the setup, the results should be understood as a lower bound, implying that international cooperation can lead to significant benefits even for countries with profoundly different socioeconomic settings.