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Conditional versus unconditional trade concessions for developing countries

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  • Paola Conconi
  • Carlo Perroni

Abstract

We examine how trade liberalization by a large trading partner affects the ability of a small country's government to sustain free trade through a reputational mechanism. Unconditional liberalization by the large trading partner has an ambiguous effect on the small country's dynamic incentives. Liberalization through a reciprocal trade agreement, in which the large country lowers its tariffs conditionally on the small country doing the same, unambiguously dominates unconditional liberalization by the large country as a way of boosting trade reforms and reinforcing policy credibility in the small country. However, if capacity in the import-competing sector can be reduced only gradually, a conditional, reciprocal agreement may require an asynchronous exchange of concessions, where the large country liberalizes before the small country does.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 45 (2012)
Issue (Month): 2 (May)
Pages: 613-631

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Handle: RePEc:cje:issued:v:45:y:2012:i:2:p:613-631

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Cited by:
  1. Richard Baldwin, 2011. "Unilateral tariff liberalisation," Global COE Hi-Stat Discussion Paper Series gd10-159, Institute of Economic Research, Hitotsubashi University.
  2. Bernard Hoekman, 2013. "Re-Thinking Economic Development in the WTO," RSCAS Working Papers PP2013/09, European University Institute.

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