IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v59y2003i2p367-397.html
   My bibliography  Save this article

Gradualism in free trade agreements: a theoretical justification

Author

Listed:
  • Chisik, Richard

Abstract

A notable feature of many recent trade agreements is the gradual, rather than immediate, reduction of trade barriers. In this paper we model trade liberalization as a cooperative relationship that evolves gradually in a non-cooperative environment. We show that specialization, capacity irreversibility and the development of trade-partner specific capital increase the benefit of continuing the liberalizing relationship and decrease, over time, the lowest obtainable self-enforcing tariff. By increasing the penalty of future defection, sunk costs ensure that the self-enforcing trading relationship starts slowly, but once in progress the level of cooperation continues to improve.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
  • Handle: RePEc:eee:inecon:v:59:y:2003:i:2:p:367-397
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022-1996(02)00019-3
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
    2. Lawrence M. Ausubel & Raymond J. Deneckere, 1987. "One is Almost Enough for Monopoly," RAND Journal of Economics, The RAND Corporation, pages 255-274.
    3. Benhabib, Jess & Radner, Roy, 1992. "The Joint Exploitation of a Productive Asset: A Game-Theoretic Approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 155-190, April.
    4. Lapham, Beverly, 1995. "Tariffs and Welfare in a Dynamic Differentiated Oligopoly," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 60-74, February.
    5. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, pages 333-361.
    6. Anat R. Admati & Motty Perry, 1991. "Joint Projects without Commitment," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 259-276.
    7. Devereux, Michael B, 1997. "Growth, Specialization, and Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 565-585, August.
    8. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, pages 779-795.
    9. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-153, March.
    10. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, pages 267-283.
    11. Halvor Mehlum, 1998. "Why gradualism?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(3), pages 279-297.
    12. Hungerford, Thomas L., 1991. "GATT: A cooperative equilibrium in a noncooperative trading regime?," Journal of International Economics, Elsevier, pages 357-369.
    13. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551 Elsevier.
    14. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 4, pages 45-51 World Scientific Publishing Co. Pte. Ltd..
    15. McLaren, John, 1997. "Size, Sunk Costs, and Judge Bowker's Objection to Free Trade," American Economic Review, American Economic Association, vol. 87(3), pages 400-420, June.
    16. Lapan, Harvey E, 1988. "The Optimal Tariff, Production Lags, and Time Consistency," American Economic Review, American Economic Association, vol. 78(3), pages 395-401, June.
    17. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    18. Rowat, M. & Lubrano, M. & Porrata, R.Jr., 1997. "Competition Policy and MERCOSUR," Papers 385, World Bank - Technical Papers.
    19. Falvey, Rod & Kim, Cha Dong, 1992. "Timing and Sequencing Issues in Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 102(413), pages 908-924, July.
    20. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-837, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Benchekroun Hassan & Yildiz Halis Murat, 2011. "Free Trade, Autarky and the Sustainability of an International Environmental Agreement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-30, January.
    2. 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.
    3. Richard E. Baldwin, 2011. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocks on the Path to Global Free Trade," Chapters,in: International Handbook on the Economics of Integration, Volume I, chapter 2 Edward Elgar Publishing.
    4. Hideo Konishi & Carsten Kowalczyk & Tomas Sjostrom, 2003. "Free Trade, Customs Unions, and Transfers," Boston College Working Papers in Economics 568, Boston College Department of Economics.
    5. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series 2660, CESifo Group Munich.
    6. Kym Anderson, 2016. "Contributions Of The Gatt/Wto To Global Economic Welfare: Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 30(1), pages 56-92, February.
    7. Phillip McCalman & Frank Stähler & Gerald Willmann, 2011. "Contingent Trade Policy and Economic Efficiency," CESifo Working Paper Series 3424, CESifo Group Munich.
    8. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, pages 410-433.
    9. Sergei Guriev & Mikhail Klimenko, 2015. "Duration and Term Structure of Trade Agreements," Economic Journal, Royal Economic Society, vol. 125(589), pages 1818-1849, December.
    10. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    11. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    12. Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, pages 47-61.
    13. Carsten Herrmann-Pillath, 2006. "Reciprocity and the hidden constitution of world trade," Constitutional Political Economy, Springer, vol. 17(3), pages 133-163, September.
    14. Richard Chisik & Ronald B. Davies, 2000. "Gradualism in Tax Treaties with Irreversible Foreign Direct Investment," University of Oregon Economics Department Working Papers 2000-3, University of Oregon Economics Department, revised 01 Jun 2002.
    15. Sauré, Philip, 2014. "Domestic policies in self-enforcing trade agreements," European Economic Review, Elsevier, vol. 68(C), pages 19-30.
    16. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
    17. Richard Chisik & Ronald B. Davies, 2004. "Gradualism In Tax Treaties With Irreversible Foreign Direct Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 113-139, February.
    18. Richard Baldwin, 2007. "Multilateralising Regionalism: Sphagetti Bowls as building Blocs on the Path to Global Free Trade," Working Papers id:1231, eSocialSciences.
    19. Conconi, Paola & Perroni, Carlo, 2015. "Special and Differential Treatment of Developing Countries in the WTO," World Trade Review, Cambridge University Press, vol. 14(01), pages 67-86, January.
    20. Bag, Parimal Kanti & Roy Chowdhury, Prabal, 2016. "Gradualism in aid and reforms," Journal of International Economics, Elsevier, pages 108-123.
    21. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.
    22. Eiji Yamamura & Yoshiro Tsutsui, 2017. "Trade policy preference, childhood sporting experience, and informal school curriculum: Examination from the viewpoint of behavioral economics," Discussion Papers in Economics and Business 17-25, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    23. Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, pages 47-61.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:59:y:2003:i:2:p:367-397. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.