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Conditional versus unconditional trade concessions for developing countries

Author

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  • Paola Conconi
  • Carlo Perroni

Abstract

We examine how trade liberalization by a large trading partner affects the ability of a small country's government to sustain free trade through a reputational mechanism. Unconditional liberalization by the large trading partner has an ambiguous effect on the small country's dynamic incentives. Liberalization through a reciprocal trade agreement, in which the large country lowers its tariffs conditionally on the small country doing the same, unambiguously dominates unconditional liberalization by the large country as a way of boosting trade reforms and reinforcing policy credibility in the small country. However, if capacity in the import-competing sector can be reduced only gradually, a conditional, reciprocal agreement may require an asynchronous exchange of concessions, where the large country liberalizes before the small country does.

Suggested Citation

  • Paola Conconi & Carlo Perroni, 2012. "Conditional versus unconditional trade concessions for developing countries," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 613-631, May.
    • Handle: RePEc:cje:issued:v:45:y:2012:i:2:p:613-631
    DOI: 10.1111/j.1540-5982.2012.01711.x
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    Cited by:

    1. Eiichi TOMIURA & Banri ITO & Hiroshi MUKUNOKI & Ryuhei WAKASUGI, 2014. "Reciprocal Versus Unilateral Trade Liberalization: Comparing individual characteristics of supporters," Discussion papers 14067, Research Institute of Economy, Trade and Industry (RIETI).
    2. Baldwin, Richard, 2010. "Unilateral tariff liberalisation," CEPR Discussion Papers 8162, C.E.P.R. Discussion Papers.
    3. Bernard Hoekman, 2013. "Re-Thinking Economic Development in the WTO," RSCAS Working Papers PP2013/09, European University Institute.
    4. Bernard Hoekman, 2014. "Supply Chains, Mega-Regionals and Multilateralism: A Road Map for the WTO," RSCAS Working Papers 2014/27, European University Institute.
    5. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    6. Jaime DE MELO & Marcelo OLARREAGA, 2017. "Trade Related Institutions and Development," Working Papers P199, FERDI.
    7. Paola Conconi & Carlo Perroni, 2012. "Conditional versus unconditional trade concessions for developing countries," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 613-631, May.
    8. Conconi, Paola & Perroni, Carlo, 2015. "Special and Differential Treatment of Developing Countries in the WTO," World Trade Review, Cambridge University Press, vol. 14(1), pages 67-86, January.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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