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Policy choice: Theory and evidence from commitment via international trade agreements

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  • Limão, Nuno
  • Tovar, Patricia

Abstract

Why do governments employ inefficient policies when more efficient ones are available for the same purpose? We address this puzzle in the context of redistribution toward special interest groups (SIGs) by focusing on a set of important policies: tariffs and non-tariff barriers (NTBs). In our policy choice model a government can gain by committing to constrain tariffs through international agreements even if this leads to the use of less efficient NTBs; commitment has political value because it improves the bargaining position of a government that is weak relative to domestic SIGs. Using detailed data we find support for several of the model's predictions including: (i) tariff commitments in trade agreements increase the likelihood and restrictiveness of NTBs but not enough to offset the original tariff reductions; (ii) tariff commitments are more likely to be adopted and more stringent when the government is weaker relative to a SIG. Thus, the results can explain the use of inefficient policies for redistribution and suggest that the bargaining motive is an important source of the political value of commitment in international agreements.

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Bibliographic Info

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

Volume (Year): 85 (2011)
Issue (Month): 2 ()
Pages: 186-205

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Handle: RePEc:eee:inecon:v:85:y:2011:i:2:p:186-205

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

Related research

Keywords: Commitment; International agreements; Trade; Tariff; Non-tariff barrier; Political economy;

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Citations

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Cited by:
  1. Paolo E. Giordani & Nadia Rocha & Michele Ruta, 2012. "Food Prices and the Multiplier Effect of Export Policy," CESifo Working Paper Series 3783, CESifo Group Munich.
  2. Mariano Tommasi & Carlos Scartascini & Ernesto Stein, 2010. "Veto Players and Policy Trade-offs. An Intertemporal Approach to Study the Effects of Political Institutions on Policy," Working Papers 101, Universidad de San Andres, Departamento de Economia, revised Mar 2010.
  3. Brou Daniel & Ruta Michele, 2013. "A Commitment Theory of Subsidy Agreements," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 239-270, May.
  4. Peter Egger & Georg Wamser, 2013. "Effects of the Endogenous Scope of Preferentialism on International Goods Trade," CESifo Working Paper Series 4208, CESifo Group Munich.
  5. Lawley, Chad, 2013. "Protectionism versus risk in screening for invasive species," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 438-451.
  6. Handley, Kyle & Limão, Nuno, 2012. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," CEPR Discussion Papers 8798, C.E.P.R. Discussion Papers.
  7. Bown, Chad P., 2013. "Trade policy flexibilities and Turkey : tariffs, antidumping, safeguards, and WTO dispute settlement," Policy Research Working Paper Series 6322, The World Bank.
  8. Bown, Chad P., 2014. "Trade policy instruments over time," Policy Research Working Paper Series 6757, The World Bank.
  9. Arcand, Jean-Louis & Olarreaga, Marcelo & Zoratto, Laura, 2011. "Weak Governments and Trade Agreements," CEPR Discussion Papers 8595, C.E.P.R. Discussion Papers.

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