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A Political-Economy Theory of Trade Agreements

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  • Giovanni Maggi
  • Andrés Rodríguez-Clare

Abstract

We present a model where trade agreements are motivated by the desire of governments to commit vis-�-vis domestic lobbies, in addition to standard terms-of-trade externalities. The model predicts that trade liberalization is deeper when capital is more mobile across sectors, and when governments are more politically motivated (provided domestic-commitment motives are strong enough). The model also provides a new rationale for the use of tariff ceilings. In a fully dynamic specification of the model, tariffs are reduced in two stages: an immediate cut and a subsequent gradual reduction, with the speed of liberalization increasing in the degree of capital mobility. (JEL D72, F13)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.97.4.1374
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 4 (September)
Pages: 1374-1406

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:4:p:1374-1406

Note: DOI: 10.1257/aer.97.4.1374
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  1. Pravin Krishna, 1998. "Regionalism And Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 227-250, February.
  2. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
  3. Grossman, Gene & Helpman, Elhanan, 1994. "The Politics of Free Trade Agreements," CEPR Discussion Papers 908, C.E.P.R. Discussion Papers.
  4. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
  5. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  6. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  7. Grossman, G.M. & Helpman, E., 1992. "Trade Wars and Trade Talks," Papers 163, Princeton, Woodrow Wilson School - Public and International Affairs.
  8. Kyle Bagwell & Robert W. Staiger, 2004. "Enforcement, Private Political Pressure and the GATT/WTO Escape Clause," NBER Working Papers 10987, National Bureau of Economic Research, Inc.
  9. Paola Conconi & Carlo Perroni, 2003. "Self-Enforcing International Agreements and Domestic Policy Credibility," CESifo Working Paper Series 988, CESifo Group Munich.
  10. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  11. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, vol. 49(2), pages 333-361, December.
  12. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
  13. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
  14. Robert Staiger, 1994. "A Theory of Gradual Trade Liberalization," International Trade 9410003, EconWPA, revised 21 Oct 1994.
  15. Mitra, Devashish, 2002. "Endogenous political organization and the value of trade agreements," Journal of International Economics, Elsevier, vol. 57(2), pages 473-485, August.
  16. Kyle Bagwell & Robert W. Staiger, 1997. "Reciprocity, Non-discrimination and Preferential Agreements in the Multilateral Trading System," NBER Working Papers 5932, National Bureau of Economic Research, Inc.
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