Empirical studies have repeatedly documented the countercyclical nature of trade barriers. In this paper, we propose a simple theoretical framework that is consistent with this and other empirical regularities in the relationship between protection and the business cycle. We examime the ability of countries to maintain efficiency-enhancing reciprocal trade agreements that control their temptation to resort to beggar-thy-neighbor policies, under the requirement that such agreements are self enforcing. We find theoretical supposr for countercyclical movements in protection levels, as the fast growth in trade volume that is associated with a boom phase facilitates the maintenance of more liberal trade policies than can be sustained during a recession phase in which growth is slow. However, we also find that acyclical increases in the level of trade volume give rise to protection, implying that whether rising imports are met with greater liberalization or increased protection depends on whether they are part of a cyclic upward trend in trade volume or an acyclical increase in import levels.
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
1130.
Length: Date of creation: May 1995 Date of revision: Handle: RePEc:nwu:cmsems:1130
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Grossman, Gene M & Helpman, Elhanan, 1994.
"Protection for Sale,"
American Economic Review,
American Economic Association, vol. 84(4), pages 833-50, September.
[Downloadable!] (restricted)
Other versions:
Gene M. Grossman & Elhanan Helpman, 1992.
"Protection For Sale,"
NBER Working Papers
4149, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Kyle Bagwell & Robert W. Staiger, 1996.
"Reciprocal Trade Liberalization,"
Discussion Papers
1150, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Kyle Bagwell & Robert W. Staiger, 1995.
"Collusion Over the Business Cycle,"
Discussion Papers
1118, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Bagwell, Kyle & Staiger, Robert W, 1990.
"A Theory of Managed Trade,"
American Economic Review,
American Economic Association, vol. 80(4), pages 779-95, September.
[Downloadable!] (restricted)
Other versions:
Kyle Bagwell & Robert W. Staiger, 1989.
"A Theory of Managed Trade,"
Discussion Papers
801, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Kyle Bagwell & Robert W. Staiger, 2000.
"GATT-Think,"
NBER Working Papers
8005, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Kyle Bagwell & Robert W. Staiger, 2002.
"GATT-think,"
Discussion Papers
0102-39, Columbia University, Department of Economics.
[Downloadable!]