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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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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
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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. Christos Genakos & Tommaso Valletti, 2007. "Testing the "waterbed" effect in mobile telephony," LSE Research Online Documents on Economics 19680, London School of Economics and Political Science, LSE Library.
  2. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
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