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Gradualism in Free Trade Agreements: A Theoretical Justification

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  • Richard Chisik

    () (Department of Economics, Ryerson University, Toronto, Canada)

Abstract

A notable feature of many recent trade agreements is the gradual, rather than immediate, reduction of trade barriers. In this paper we model trade liberalization as a cooperative relationship that evolves gradually in a non-cooperative environment. We show that specialization, capacity irreversibility and the development of trade-partner specific capital increase the benefit of continuing the liberalizing relationship and decrease, over time, the lowest obtainable self-enforcing tariff. By increasing the penalty of future defection, sunk costs ensure that the self-enforcing trading relationship starts slowly, but once in progress the level of cooperation continues to improve.

Suggested Citation

  • Richard Chisik, 2010. "Gradualism in Free Trade Agreements: A Theoretical Justification," Working Papers 018, Ryerson University, Department of Economics.
  • Handle: RePEc:rye:wpaper:wp018
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    Cited by:

    1. Paola Conconi & Carlo Perroni, 2012. "Conditional versus unconditional trade concessions for developing countries," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 613-631, May.
    2. Richard E. Baldwin, 2011. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocks on the Path to Global Free Trade," Chapters,in: International Handbook on the Economics of Integration, Volume I, chapter 2 Edward Elgar Publishing.
    3. Sergei Guriev & Mikhail Klimenko, 2015. "Duration and Term Structure of Trade Agreements," Economic Journal, Royal Economic Society, vol. 125(589), pages 1818-1849, December.
    4. Benchekroun Hassan & Yildiz Halis Murat, 2011. "Free Trade, Autarky and the Sustainability of an International Environmental Agreement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-30, January.
    5. 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.
    6. Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, vol. 88(1), pages 47-61.
    7. Sauré, Philip, 2014. "Domestic policies in self-enforcing trade agreements," European Economic Review, Elsevier, vol. 68(C), pages 19-30.
    8. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    9. Richard E. Baldwin, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," The World Economy, Wiley Blackwell, vol. 29(11), pages 1451-1518, November.
    10. Conconi, Paola & Perroni, Carlo, 2015. "Special and Differential Treatment of Developing Countries in the WTO," World Trade Review, Cambridge University Press, vol. 14(01), pages 67-86, January.
    11. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.
    12. Eiji Yamamura & Yoshiro Tsutsui, 2017. "Trade policy preference, childhood sporting experience, and informal school curriculum: Examination from the viewpoint of behavioral economics," Discussion Papers in Economics and Business 17-25, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    13. Phillip McCalman & Frank Stähler & Gerald Willmann, 2011. "Contingent Trade Policy and Economic Efficiency," CESifo Working Paper Series 3424, CESifo Group Munich.
    14. Hideo Konishi & Carsten Kowalczyk & Tomas Sjostrom, 2003. "Free Trade, Customs Unions, and Transfers," Boston College Working Papers in Economics 568, Boston College Department of Economics.
    15. Carsten Herrmann-Pillath, 2006. "Reciprocity and the hidden constitution of world trade," Constitutional Political Economy, Springer, vol. 17(3), pages 133-163, September.
    16. Bag, Parimal Kanti & Roy Chowdhury, Prabal, 2016. "Gradualism in aid and reforms," Journal of International Economics, Elsevier, vol. 103(C), pages 108-123.
    17. repec:taf:jitecd:v:26:y:2017:i:3:p:361-384 is not listed on IDEAS
    18. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series 2660, CESifo Group Munich.
    19. Kym Anderson, 2016. "Contributions Of The Gatt/Wto To Global Economic Welfare: Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 30(1), pages 56-92, February.
    20. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
    21. Richard Chisik & Ronald B. Davies, 2004. "Gradualism In Tax Treaties With Irreversible Foreign Direct Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 113-139, February.
    22. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    23. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Trade Negotiations; Gradualism; Irreversibilities; Economic Integration; Dynamic Games.;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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