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Political Economy of Altering Trade Restrictions in Response to Commodity Price Spikes

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  • Jayanthi Thennakoon

Abstract

A model is developed to explain trade policy interventions in response to commodity price spikes. The model predicts that government preferences for averting losses for domestic interest groups lead to changes in trade distortions. In particular, trade interventions in response to downward price spikes are predicted, which is consistent with the proposal for a Special Safeguard Mechanism (SSM) in the World Trade Organization (WTO). Higher tariffs are likely in a noncooperative setting, and higher export subsidies will emerge in response. An efficient cooperative trade policy can be achieved in a repeated game setting and with possible involvement of the WTO.

Suggested Citation

  • Jayanthi Thennakoon, 2015. "Political Economy of Altering Trade Restrictions in Response to Commodity Price Spikes," Review of Development Economics, Wiley Blackwell, vol. 19(2), pages 434-447, May.
  • Handle: RePEc:bla:rdevec:v:19:y:2015:i:2:p:434-447
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    File URL: http://hdl.handle.net/10.1111/rode.12152
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    References listed on IDEAS

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    Cited by:

    1. Donald MacLaren, 2016. "The Contingent Tariff of the Special Safeguard Mechanism: What Happens When Markets are Imperfectly Competitive?," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(1), pages 62-83, February.

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