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Unilateral Tariff Liberalisation

  • Richard Baldwin

Unilateral tariff liberalisation by developing nations is pervasive but our understanding of it is shallow. This paper strives to partly redress this lacuna on the theory side by introducing three novel political economy mechanisms with particular emphasis is on the role of production unbundling. One mechanism studies how lowering frictional barriers to imported parts can destroy the correlation of interests between parts producers and their downstream customers. A second mechanism studies how Kojima's pro-trade FDI raises the political economy cost of maintaining high upstream barriers. The third works via a general equilibrium channel whereby developing country's participation in the supply chains of advanced-nation industries undermines their own competitiveness in final goods, thus making final good protection more politically costly. In essence, developing nations' pursuit of the export-processing industrialisation undermines their infant-industry industrialisation strategies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16600.

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Date of creation: Dec 2010
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Publication status: published as “Unilateral tariff liberalisation”, in The International Economy , Journal of The Japan Society of. International Economics, No.14, pp 10-43. 2010. Also NBER WP No. 16600, 2010.
Handle: RePEc:nbr:nberwo:16600
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