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Escaping a protectionist rut: Policy mechanisms for trade reform in a democracy

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  • Blanchard, Emily
  • Willmann, Gerald

Abstract

This paper analyzes the dynamics of trade policy reform under democracy. In an overlapping generations model, heterogeneous agents may acquire skills when young thereby determining the skill composition of their cohort. Current and anticipated trade policies influence education decisions and thus voters' trade policy preferences. We show that there may exist two political steady states: one protectionist and one liberal. Transition from the former to the latter can be achieved by government announcements, temporary educational subsidies, or tariff liberalization by trading partners, but generally not by transfer payments to adversely affected workers. We find additionally that reform is politically feasible only if the proposed liberalization is sufficiently large, suggesting that radical reform may be necessary for escaping a protectionist political rut.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 85 (2011)
Issue (Month): 1 (September)
Pages: 72-85

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Handle: RePEc:eee:inecon:v:85:y:2011:i:1:p:72-85

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Dynamic political economy Trade policy Skill acquisition Politically stable policy paths Referenda;

References

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Cited by:
  1. Spiros Bougheas & Douglas R. Nelson, 2012. "On the Political Economy of High Skilled Migration and International Trade," CESifo Working Paper Series 3880, CESifo Group Munich.

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