The Value of Trade Agreements in the Presence of Political Pressures
An argument often heard in favor of trade agreements is that they provide a way for a government to credibly distance itself from the domestic special interest groups who lobby for protection; the idea is that, by committing to free trade, a government may be able to foreclse political pressures at home. In this paper we develop a dynamic, small-country model in which factors are sector-specific in the short run but mobile across sectors in the long run, and show that the rents derived from the political process may not compensate the government for the welfare distortions caused by protection.
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