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

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  • 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
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    References listed on IDEAS

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    More about this item

    Keywords

    Political Economy; Trade Policy; Skill Acquisition; Politically Stable Policy Paths; Referenda;

    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

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