IDEAS home Printed from https://ideas.repec.org/p/zbw/cauewp/5862.html
   My bibliography  Save this paper

Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy

Author

Listed:
  • Willmann, Gerald
  • Blanchard, Emily J.

Abstract

This paper analyzes the dynamics of trade policy reform under democracy. In an overlapping generations model, heterogeneous agents may acquire skills when young, thereby determining the skill composition of their cohort. Current and anticipated trade policies influence education decisions, and thus the identity of the median voter. We show that there may exist two political steady states: one protectionist and one liberal. Transition from the former to the latter can be achieved by government announcements, temporary educational subsidies, or (exogenous) tariff liberalization by trading partners, but not, in general, by transfer payments to adversely affected workers. We find additionally that reform is politically feasible only if the proposed liberalization is sufficiently large, suggesting that radical reform may be necessary for escaping a ?protectionist rut.?

Suggested Citation

  • Willmann, Gerald & Blanchard, Emily J., 2007. "Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy," Economics Working Papers 2007-21, Christian-Albrechts-University of Kiel, Department of Economics.
  • Handle: RePEc:zbw:cauewp:5862
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/22037/1/EWP-2007-21.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ngo Van Long & Raymond Riezman & Antoine Soubeyran, 2007. "Trade, Wage Gaps, and Specific Human Capital Accumulation," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 75-92, February.
    2. Kiminori Matsuyama, 1992. "A Simple Model of Sectoral Adjustment," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 375-387.
    3. Giovanni Maggi & Andrés Rodríguez-Clare, 2007. "A Political-Economy Theory of Trade Agreements," American Economic Review, American Economic Association, vol. 97(4), pages 1374-1406, September.
    4. Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-978, December.
    5. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
    6. Per Krusell & José-Víctor Ríos-Rull, 1996. "Vested Interests in a Positive Theory of Stagnation and Growth," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 301-329.
    7. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
    8. Pravin Krishna & Devashish Mitra, 2016. "Reciprocated unilateralism in trade policy," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 3, pages 37-63, World Scientific Publishing Co. Pte. Ltd..
    9. Theo S. Eicher, 1996. "Interaction Between Endogenous Human Capital and Technological Change," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 127-144.
    10. Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
    11. Gilles Saint-Paul, 2001. "The Dynamics of Exclusion and Fiscal Conservatism," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 275-302, April.
    12. Artuç, Erhan & Chaudhuri, Shubham & McLaren, John, 2008. "Delay and dynamics in labor market adjustment: Simulation results," Journal of International Economics, Elsevier, vol. 75(1), pages 1-13, May.
    13. Marco Bassetto, 2008. "Political Economy of Taxation in an Overlapping-Generations Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 18-43, January.
    14. Francesc Ortega, 2004. "Immigration and the survival of the welfare state," Economics Working Papers 815, Department of Economics and Business, Universitat Pompeu Fabra.
    15. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
    16. Magee, Christopher S.P. & Davidson, Carl & Matusz, Steven J., 2005. "Trade, turnover, and tithing," Journal of International Economics, Elsevier, vol. 66(1), pages 157-176, May.
    17. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
    18. Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 167-186, March.
    19. Pravin Krishna & Devashish Mitra, 2016. "Reciprocated unilateralism in trade reforms with majority voting," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 8, pages 147-159, World Scientific Publishing Co. Pte. Ltd..
    20. Glomm, Gerhard & Ravikumar, B., 1996. "Endogenous public policy and multiple equilibria," European Journal of Political Economy, Elsevier, vol. 11(4), pages 653-662, April.
    21. Franziska Ohnsorge & Daniel Trefler, 2004. "Sorting It Out: International Trade and Protection With Heterogeneous Workers," NBER Working Papers 10959, National Bureau of Economic Research, Inc.
    22. John McLaren, 2002. "A Theory of Insidious Regionalism," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 571-608.
    23. Carl Davidson & Steven J. Matusz, 2006. "Long‐run Lunacy, Short‐run Sanity: a Simple Model of Trade with Labor Market Turnover," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 261-276, May.
    24. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    25. Carl Davidson & Steven J. Matusz, 2004. "An Overlapping‐generations Model of Escape Clause Protection," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 749-768, November.
    26. Willmann, Gerald, 2004. "Pareto gains from trade: a dynamic counterexample," Economics Letters, Elsevier, vol. 83(2), pages 199-204, May.
    27. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-837, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
    2. repec:dau:papers:123456789/6913 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Blanchard, Emily & Willmann, Gerald, 2011. "Escaping a protectionist rut: Policy mechanisms for trade reform in a democracy," Journal of International Economics, Elsevier, vol. 85(1), pages 72-85, September.
    2. Daiki Kishishita, 2018. "When trade liberalization is self†fulfilling: Population aging and uncertainty," Economics and Politics, Wiley Blackwell, vol. 30(2), pages 274-306, July.
    3. Blanchard, Emily & Willmann, Gerald, 2022. "Unequal gains, prolonged pain: A model of protectionist overshooting and escalation," Journal of International Economics, Elsevier, vol. 135(C).
    4. Daiki Kishishita, 2019. "Does high labour mobility always promote trade liberalization?," Canadian Journal of Economics, Canadian Economics Association, vol. 52(3), pages 1223-1247, August.
    5. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    6. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    7. Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
    8. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
    9. Blanchard, Emily & Willmann, Gerald, 2018. "Unequal Gains, Prolonged Pain: A Model of Protectionist Overshooting and Escalation," CEPR Discussion Papers 13160, C.E.P.R. Discussion Papers.
    10. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    11. Harris, Richard G. & Robertson, Peter E., 2013. "Trade, wages and skill accumulation in the emerging giants," Journal of International Economics, Elsevier, vol. 89(2), pages 407-421.
    12. Egger, Hartmut & Fischer, Christian, 2020. "Increasing resistance to globalization: The role of trade in tasks," European Economic Review, Elsevier, vol. 126(C).
    13. Claire H. Hollweg & Daniel Lederman & Devashish Mitra, 2016. "Structural Reforms and Labour-market Outcomes: International Panel-data Evidence," The World Economy, Wiley Blackwell, vol. 39(7), pages 925-963, July.
    14. Shoya Ishimaru & Soo Hyun Oh & Seung-Gyu Sim, 2017. "Trade preferences and political equilibrium associated with trade liberalization," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(3), pages 361-384, April.
    15. Xuepeng Liu & Emanuel Ornelas, 2014. "Free Trade Agreements and the Consolidation of Democracy," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 29-70, April.
    16. Bown, Chad P. & Crowley, Meredith A., 2014. "Emerging economies, trade policy, and macroeconomic shocks," Journal of Development Economics, Elsevier, vol. 111(C), pages 261-273.
    17. Brou Daniel & Ruta Michele, 2013. "A Commitment Theory of Subsidy Agreements," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 239-270, January.
    18. Cole, Matthew T. & Lake, James & Zissimos, Ben, 2021. "Contesting an international trade agreement," Journal of International Economics, Elsevier, vol. 128(C).
    19. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.

    More about this item

    Keywords

    Political Economy; Trade Policy; Skill Acquisition; Politically Stable Policy Paths; Referenda;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:cauewp:5862. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/vakiede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vakiede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.