IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Policy choice: Theory and evidence from commitment via international trade agreements

  • Limão, Nuno
  • Tovar, Patricia

Why do governments employ inefficient policies when more efficient ones are available for the same purpose? We address this puzzle in the context of redistribution toward special interest groups (SIGs) by focusing on a set of important policies: tariffs and non-tariff barriers (NTBs). In our policy choice model a government can gain by committing to constrain tariffs through international agreements even if this leads to the use of less efficient NTBs; commitment has political value because it improves the bargaining position of a government that is weak relative to domestic SIGs. Using detailed data we find support for several of the model's predictions including: (i) tariff commitments in trade agreements increase the likelihood and restrictiveness of NTBs but not enough to offset the original tariff reductions; (ii) tariff commitments are more likely to be adopted and more stringent when the government is weaker relative to a SIG. Thus, the results can explain the use of inefficient policies for redistribution and suggest that the bargaining motive is an important source of the political value of commitment in international agreements.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0022199611000730
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 under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 85 (2011)
Issue (Month): 2 ()
Pages: 186-205

as
in new window

Handle: RePEc:eee:inecon:v:85:y:2011:i:2:p:186-205
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Gary S. Becker & Casey B. Mulligan, 1998. "Deadweight Costs and the Size of Government," University of Chicago - George G. Stigler Center for Study of Economy and State 144, Chicago - Center for Study of Economy and State.
  2. 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.
  3. Grossman, G.M. & Helpman, E., 1993. "Trade Wars and Trade Talks," Papers 1-93, Tel Aviv.
  4. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01.
  5. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoglu, 2002. ""Protection For Sale" In A Developing Country: Democracy Vs. Dictatorship," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 497-508, August.
  6. 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.
  7. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  8. William H. Kaempfer & J. Harold, Jr McClure & Thomas D. Willett, 1989. "Incremental Protection and Efficient Political Choice between Tariffs and Quotas," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 228-36, May.
  9. Sübidey Togan, 2005. "Turkey: Trade Policy Review," The World Economy, Wiley Blackwell, vol. 28(9), pages 1229-1262, 09.
  10. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
  11. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  12. Young, Lealie, 1980. "Tariffs vs . Quotas under Uncertainty: An Extension," American Economic Review, American Economic Association, vol. 70(3), pages 522-27, June.
  13. Rodney Ludema and Ann Maria Mayda, 2008. "Do Countries Free Ride on MFN?," Working Papers gueconwpa~08-08-04, Georgetown University, Department of Economics.
  14. Michel Dumont & Glenn Rayp & Peter Willemé, 2006. "Does internationalization affect union bargaining power? An empirical study for five EU countries," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 77-102, January.
  15. Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2006. "Trade Agreements as Endogenously Incomplete Contracts," NBER Working Papers 12745, National Bureau of Economic Research, Inc.
  16. Dixit, Avinash & Grossman, Gene M. & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Scholarly Articles 3450061, Harvard University Department of Economics.
  17. R. W. Staiger & G. Tabellini, 1999. "Do Gatt Rules Help Governments Make Domestic Commitments?," Economics and Politics, Wiley Blackwell, vol. 11(2), pages 109-144, 07.
  18. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  19. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  20. Cassing, James H. & Hillman, Arye L., 1985. "Political influence motives and the choice between tariffs and quotas," Journal of International Economics, Elsevier, vol. 19(3-4), pages 279-290, November.
  21. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-65, December.
  22. Falvey, Rodney E & Lloyd, P J, 1991. "Uncertainty and the Choice of Protective Instrument," Oxford Economic Papers, Oxford University Press, vol. 43(3), pages 463-78, July.
  23. Secil Kaya & Yesim Üçdogruk, 2002. "The dynamics of entry and exit in turkish manufacturing industry," ERC Working Papers 0202, ERC - Economic Research Center, Middle East Technical University, revised Feb 2002.
  24. John Douglas Wilson, 1990. "Are Efficiency Improvements In Government Transfer Policies Self-Defeating In Political Equilibrium?," Economics and Politics, Wiley Blackwell, vol. 2(3), pages 241-258, November.
  25. James E. Anderson, 1988. "The Relative Inefficiency of Quotas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511789, June.
  26. Young, Leslie & Anderson, James E, 1982. "Risk Aversion and Optimal Trade Restrictions," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 291-305, April.
  27. Ray, Edward John, 1981. "The Determinants of Tariff and Nontariff Trade Restrictions in the United States," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 105-21, February.
  28. Mitra, Devashish, 2002. "Endogenous political organization and the value of trade agreements," Journal of International Economics, Elsevier, vol. 57(2), pages 473-485, August.
  29. Doiron, Denise J, 1992. "Bargaining Power and Wage-Employment Contracts in a Unionized Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 583-606, August.
  30. Ederington Josh & Minier Jenny, 2006. "Why Tariffs, Not Subsidies? A Search for Stylized Facts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-34, November.
  31. Veugelers, Reinhilde, 1989. "Wage premia, price-cost margins and bargaining power in Belgian manufacturing," European Economic Review, Elsevier, vol. 33(1), pages 169-180, January.
  32. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:85:y:2011:i:2:p:186-205. 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: (Zhang, Lei)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.