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A Simple Model of the Juggernaut Effect of Trade Liberalisation

Listed author(s):
  • 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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File URL: http://cep.lse.ac.uk/pubs/download/dp0845.pdf
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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
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. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  2. 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.
  3. Gene M. Grossman & Elhanan Helpman, 1993. "Trade Wars and Trade Talks," NBER Working Papers 4280, National Bureau of Economic Research, Inc.
  4. Christos Genakos & Tommaso Valletti, 2008. "Testing the “Waterbed” Effect in Mobile Telephony," CEIS Research Paper 110, Tor Vergata University, CEIS, revised 11 Jul 2008.
  5. Richard E. Baldwin & Frédéric Robert-Nicoud, 2008. "A Simple Model of the Juggernaut Effect of Trade Liberalisation," CEP Discussion Papers dp0845, Centre for Economic Performance, LSE.
  6. Baldwin, Richard & Forslid, Rikard, 2004. "Trade Liberalization with Heterogenous Firms," CEPR Discussion Papers 4635, C.E.P.R. Discussion Papers.
  7. 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.
  8. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  9. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," CEP Discussion Papers dp0791, Centre for Economic Performance, LSE.
  10. Baldwin, Richard & Jaimovich, Dany, 2009. "Are Free Trade Agreements Contagious?," CCES Discussion Paper Series 12, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  11. Bombardini, Matilde, 2008. "Firm heterogeneity and lobby participation," Journal of International Economics, Elsevier, vol. 75(2), pages 329-348, July.
  12. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  13. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Protection for sale made easy," LSE Research Online Documents on Economics 19713, London School of Economics and Political Science, LSE Library.
  14. Eran Yashiv, 2007. "U.S. Labor Market Dynamics Revisited," CEP Discussion Papers dp0831, Centre for Economic Performance, LSE.
  15. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1531-1575.
  16. 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 1238-1273, June.
  17. Giovanni Maggi & Andres Rodriguez-Clare, 2005. "A Political-Economy Theory of Trade Agreements," NBER Working Papers 11716, National Bureau of Economic Research, Inc.
  18. Kyle Bagwell & Robert W. Staiger, 2012. "Profit Shifting And Trade Agreements In Imperfectly Competitive Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1067-1104, November.
  19. 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 2032-2065, December.
  20. 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.
  21. S. Lael Brainard & Thierry Verdier, 1993. "The Political Economy of Declining Industries: Senescent Industry Collapse Revisited," NBER Working Papers 4606, National Bureau of Economic Research, Inc.
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