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A Simple Model of the Juggernaut Effect of Trade Liberalisation

  • Richard E. Baldwin
  • Frédéric Robert-Nicoud

This paper posits a formal political economy model where the principle of reciprocity in multilateral trade talks results in the gradual elimination of tariffs. Reciprocity trade talks turn each nation's exporters into anti-protectionists at home; they lower foreign tariffs by convincing their own government to lower home tariffs. Due to the new array of political forces, each government finds it politically optimal to remove tariffs that it previously found politically optimal to impose. The one-off global tariff cut then reshapes the political economy landscape via entry and exit - reducing the size/influence of import-competing sectors and increasing that of exporters. In the next round of trade talks governments therefore find it politically optimal to cut tariffs again. The process may continue until tariffs are eliminated.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0845.

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Date of creation: Jan 2008
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Handle: RePEc:cep:cepdps:dp0845
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Giovanni Maggi & Andrés Rodríguez-Clare, 2007. "A Political-Economy Theory of Trade Agreements," American Economic Review, American Economic Association, vol. 97(4), pages 1374-1406, September.
  2. Estevadeordal, Antoni & Freund, Caroline & Ornelas, Emanuel, 2008. "Does regionalism affect trade liberalization toward non-members ?," Policy Research Working Paper Series 4751, The World Bank.
  3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  4. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  5. Bombardini, Matilde, 2008. "Firm heterogeneity and lobby participation," Journal of International Economics, Elsevier, vol. 75(2), pages 329-348, July.
  6. Kyle Bagwell & Robert W. Staiger, 2009. "Profit Shifting and Trade Agreements in Imperfectly Competitive Markets," NBER Working Papers 14803, National Bureau of Economic Research, Inc.
  7. Brainard, S. Lael & Verdier, Thierry, 1997. "The political economy of declining industries: Senescent industry collapse revisited," Journal of International Economics, Elsevier, vol. 42(1-2), pages 221-237, February.
  8. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and asymmetric lobbying: why governments pick losers," LSE Research Online Documents on Economics 19726, London School of Economics and Political Science, LSE Library.
  9. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  10. Richard E. Baldwin & Rikard Forslid, 2006. "Trade Liberalization with Heterogenous Firms," NBER Working Papers 12192, National Bureau of Economic Research, Inc.
  11. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  12. Rodney D. Ludema & Anna Maria Mayda, 2013. "Do terms-of-trade effects matter for trade agreements? Theory and evidence from WTO Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1837-1893.
  13. Richard E. Baldwin & Frédéric Robert-Nicoud, 2008. "A simple model of the juggernaut effect of trade liberalisation," LSE Research Online Documents on Economics 19645, London School of Economics and Political Science, LSE Library.
  14. Marco Fugazza & Frédéric Robert-Nicoud, 2014. "The “Emulator Effect” of the Uruguay Round on US Regionalism," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 1049-1078, November.
  15. Grossman, G.M. & Helpman, E., 1993. "Trade Wars and Trade Talks," Papers 1-93, Tel Aviv.
  16. 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.
  17. Richard Baldwin & Dany Jaimovich, 2010. "Are Free Trade Agreements Contagious?," NBER Working Papers 16084, National Bureau of Economic Research, Inc.
  18. Christos Genakos & Tommaso Valletti, 2011. "Testing The “Waterbed” Effect In Mobile Telephony," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1114-1142, December.
  19. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
  20. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Protection for Sale Made Easy," CEP Discussion Papers dp0800, Centre for Economic Performance, LSE.
  21. Kyle Bagwell & Robert W. Staiger, 2011. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," American Economic Review, American Economic Association, vol. 101(4), pages 1238-73, June.
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