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A Political-Economy Theory of Trade Agreements

  • Giovanni Maggi
  • Andrés Rodríguez-Clare

We present a model where trade agreements are motivated by the desire of governments to commit vis-�-vis domestic lobbies, in addition to standard terms-of-trade externalities. The model predicts that trade liberalization is deeper when capital is more mobile across sectors, and when governments are more politically motivated (provided domestic-commitment motives are strong enough). The model also provides a new rationale for the use of tariff ceilings. In a fully dynamic specification of the model, tariffs are reduced in two stages: an immediate cut and a subsequent gradual reduction, with the speed of liberalization increasing in the degree of capital mobility. (JEL D72, F13)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.97.4.1374
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 4 (September)
Pages: 1374-1406

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:4:p:1374-1406
Note: DOI: 10.1257/aer.97.4.1374
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  1. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  2. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
  3. Bagwell,K. & Staiger,R.W., 2004. "Enforcement, private political pressure and the GATT/WTO escape clause," Working papers 23, Wisconsin Madison - Social Systems.
  4. Paola Conconi & Carlo Perroni, 2003. "Self-Enforcing International Agreements and Domestic Policy Credibility," CESifo Working Paper Series 988, CESifo Group Munich.
  5. Robert Staiger, 1994. "A Theory of Gradual Trade Liberalization," International Trade 9410003, EconWPA, revised 21 Oct 1994.
  6. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
  7. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
  8. Grossman, G.M. & Helpman, E., 1992. "Trade Wars and Trade Talks," Papers 163, Princeton, Woodrow Wilson School - Public and International Affairs.
  9. Grossman, Gene & Helpman, Elhanan, 1994. "The Politics of Free Trade Agreements," CEPR Discussion Papers 908, C.E.P.R. Discussion Papers.
  10. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, vol. 49(2), pages 333-361, December.
  11. Pravin Krishna, . "Regionalism and Multilaterialism: A Political Economy Approach," Working Papers 96-5, Brown University, Department of Economics.
  12. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
  13. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
  14. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  15. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  16. Mitra, Devashish, 2002. "Endogenous political organization and the value of trade agreements," Journal of International Economics, Elsevier, vol. 57(2), pages 473-485, August.
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