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Did bilateral and regional bargaining choke off interenational commerce and finance in the 1930s and prolong the Great Depression? And is the open world economic system now being placed at risk by explicitly discriminatory practices that erode respect for the GATT, the IMF, and the IBRD? Most political economists would answer in the affirmative, warning that bilateral and regional preferences are at best inefficient and at worst catastrophic. By constrast, Kenneth Oye shows how economic discrimination can foster international economic openness by faciliating political exchange.

"Prevailing winds, ocean currents and economic markets do not respect national boundaries. Market forces transmit the effects of economic policies abroad as surely as natural forces carry pollution to neighboring states. Domestic macroeconomic and international commercial, financial, and exchange rate policies generate externalities. As s consequence, nations do not bear all of the costs or receive all of the benefits of their actions. In the absence of countervailing pressure from abroad, nations tend to undervalue negative and positive spillover effects."

Kenneth A. Oye

Kenneth A. Oye is Associate Professor of Political Science at the Massachusetts Institute of Technology. He is the editor of Cooperation under Anarchy (Princeton) and coeditor of Eagle in a new world: American grand strategy in the Post-Cold War Era (Harper-Collins).