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Adjustment Costs and the Sequencing of Trade Liberalisation

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  • Eric W. Bond

Abstract

A common feature of trade agreements between countries is that the integration of markets proceeds in stages. This paper examines conceptually the role played by adjustment costs in determining the best way to structure an agreement between two countries when there are multiple sectors to be liberalised. Adjustment costs to liberalisation of industries might influence the timing of liberalisation, with the analysis bearing similarity to why tariff reductions tend to be phased in over time. When two industries have no ‘spillover effects’, trade agreements with sequential liberalisation will be less costly to sustain. However, if the liberalisation of one industry influences permanently the flow of benefits from liberalising the other industry, simultaneous liberalisation may be easier to sustain.

Suggested Citation

  • Eric W. Bond, 2008. "Adjustment Costs and the Sequencing of Trade Liberalisation," The World Economy, Wiley Blackwell, vol. 31(1), pages 97-111, January.
    • Handle: RePEc:bla:worlde:v:31:y:2008:i:1:p:97-111
    DOI: 10.1111/j.1467-9701.2007.01083.x
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    References listed on IDEAS

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    1. Gene M. Grossman & Edwin L.-C. Lai, 2004. "International Protection of Intellectual Property," American Economic Review, American Economic Association, vol. 94(5), pages 1635-1653, December.
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    4. Eric W. Bond, 2006. "Transportation Infrastructure Investments And Trade Liberalization," The Japanese Economic Review, Japanese Economic Association, vol. 57(4), pages 483-500, December.
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    Cited by:

    1. Itakura, Ken & Lee, Hiro, 2012. "Welfare and Structural Adjustment Implications of Asian Track and Trans-Pacific Track Sequencings of FTAs," Conference papers 332175, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Massetti, Emanuele & Ricci, Elena Claire, 2011. "Super-Grids and Concentrated Solar Power: A Scenario Analysis with the WITCH Model," Conference papers 332112, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Eric Bond, 2009. "Paths of efficient self-enforcing trade agreements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(1), pages 85-104, October.
    4. Lee, Hiro & Itakura, Ken, 2013. "What Might be a Desirable FTA Path towards Global Free Trade for Asia-Pacific Countries?," Conference papers 332391, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Ken Itakura & Hiro Lee, 2012. "Welfare Changes And Sectoral Adjustments Of Asia-Pacific Countries Under Alternative Sequencings Of Free Trade Agreements," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 1-22.

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