A Theory of Gradual Trade Liberalization
This paper proposes a theory of gradual trade liberalization. I consider countries that are limited to self-enforcing arrangements in their trade relations. I argue that enforcement problems associated with the maintenance of low cooperative tariffs are exacerbated by the presence of resources in the import-competing sector that are (or potentially could be) earning rents from their sector-specific skills. Intuitively, by being able to transform into rents a portion of what otherwise would be dead weight loss under a tariff hike, the presence of such resources makes deviation from a low cooperative tariff to a high tariff more desirable for the deviating country, and makes punishments under reciprocally high tariffs less painful. Hence, the presence of rent-collecting resources in an import-competing sector acts as a deterrent to trade liberalization. But if an initial 'round' of liberalization can induce at least a portion of these resources in the import-competing sector to relocate to the rest of the economy, and if by not using their sector-specific skills these resources stand to lose them, then the enforcement issues associated with their presence will also diminish over time, and further rounds of liberalization are made possible by the effects of the initial round. I formalize this gradual process of trade liberalization, and explore the consequences of a failed round of liberalization for the ability to maintain current levels of cooperation.
|Date of creation:||Jan 1994|
|Date of revision:|
|Publication status:||published as With Kyle Bagwell, published as "A Theory of Managed Trade", American Economic Review, Vol. 80, no. 4 (1990): 779-795.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Bagwell, Kyle & Staiger, Robert, 1994.
"Multilateral Tariff Cooperation During the Formation of Customs Unions,"
CEPR Discussion Papers
962, C.E.P.R. Discussion Papers.
- Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February.
- Kyle Bagwell & Robert Staiger, 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," International Trade 9410002, EconWPA.
- Bagwell, K. & Staiger, R.W., 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," Working papers 9404, Wisconsin Madison - Social Systems.
- Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation during the Formation of Customs Unions," NBER Working Papers 4543, National Bureau of Economic Research, Inc.
- Kyle Bagwell & Robert W. Staiger, 1993. "Miltilateral Tariff Cooperation During the Formation of Customs Unions," Discussion Papers 1070, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Michael Devereux, 1990.
"Growth, Specialization, and Trade Liberalization,"
786, Queen's University, Department of Economics.
- M. Dewatripont & G. Roland, 1992. "Economic Reform and Dynamic Political Constraints," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 703-730.
- Bagwell, Kyle & Staiger, Robert W, 1997.
"Multilateral Tariff Cooperation during the Formation of Free Trade Areas,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 291-319, May.
- Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation During the Formation of Free Trade Areas," Discussion Papers 1048, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kyle Bagwell & Robert W. Staiger, 1988.
"A Theory of Managed Trade,"
NBER Working Papers
2756, National Bureau of Economic Research, Inc.
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