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A Theory of Gradual Trade Liberalization

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  • Robert Staiger

    (University of Wisconsin)

Abstract

This paper proposes a theory of gradual trade liberalization. I consider countries that are limited to self-enforcing arrangements in their trade relations. I argue that enforcement problems associated with the maintenance of low cooperative tariffs are exacerbated by the presence of resources in the import-competing sector that are (or potentially could be) earning rents from their sector-specific skills. Intuitively, by being able to transform into rents a portion of what otherwise would be dead weight loss under a tariff hike, the presence of such resources makes deviation from a low cooperative tariff to a high tariff more desirable for the deviating country, and makes punishments under reciprocally high tariffs less painful. Hence, the presence of rent-collecting resources in an import-competing sector acts as a deterrent to trade liberalization. But if an initial "round" of liberalization can induce at least a portion of these resources in the import-competing sector to relocate to the rest of the economy, and if by not using their sector- specific skills these resources stand to lose them, then the enforcement issues associated with their presence will also diminish over time, and further rounds of liberalization are made possible by the effects of the initial round. I formalize this gradual process of trade liberalization, and explore the consequences of a failed round of liberalization for the ability to maintain current levels of cooperation.

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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 9410003.

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Date of creation: 19 Oct 1994
Date of revision: 21 Oct 1994
Handle: RePEc:wpa:wuwpit:9410003

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References

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  1. Dewatripont, M & Roland, G, 1992. "Economic Reform and Dynamic Political Constraints," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 703-30, October.
  2. Michael Devereux, 1990. "Growth, Specialization, and Trade Liberalization," Working Papers 786, Queen's University, Department of Economics.
  3. Kyle Bagwell & Robert Staiger, 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," International Trade 9410002, EconWPA.
  4. 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.
  5. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation During the Formation of Free Trade Areas," Discussion Papers 1048, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cited by:
  1. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Towards Non-Members?," CEP Discussion Papers dp0868, Centre for Economic Performance, LSE.
  2. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
  3. Giovanni Maggi & Andres Rodriguez-Clare, 2005. "A Political-Economy Theory of Trade Agreements," NBER Working Papers 11716, National Bureau of Economic Research, Inc.
  4. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
  5. Bac, Mehmet & Raff, Horst, 1997. "A theory of trade concessions," Journal of International Economics, Elsevier, vol. 42(3-4), pages 483-504, May.
  6. Richard Baldwin, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," NBER Working Papers 12545, National Bureau of Economic Research, Inc.
  7. Emanuel Ornelas, 2000. "Free Trade Areas with Politically Active Oligopolies," Econometric Society World Congress 2000 Contributed Papers 1457, Econometric Society.
  8. Michael Lusztig & Patrick James, 2004. "How Does Free Trade Become Institutionalized? An Expected Utility Model of the Chretien Era," University of Western Ontario, Economic Policy Research Institute Working Papers 20044, University of Western Ontario, Economic Policy Research Institute.

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