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A Theory of Gradual Trade Liberalization

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  • Staiger, R.W.

Abstract

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.
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Suggested Citation

  • Staiger, R.W., 1994. "A Theory of Gradual Trade Liberalization," Working papers 9405, Wisconsin Madison - Social Systems.
    • Handle: RePEc:att:wimass:9405
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Bagwell, Kyle & Staiger, Robert W., 1993. "Multilateral Tariff Cooperation During The Formation Of Regional Trade Areas," SSRI Workshop Series 292700, University of Wisconsin-Madison, Social Systems Research Institute.
    4. M. Dewatripont & G. Roland, 1992. "Economic Reform and Dynamic Political Constraints," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(4), pages 703-730.
    5. Devereux, Michael B, 1997. "Growth, Specialization, and Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 565-585, August.
    6. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, vol. 80(4), pages 779-795, September.
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    Cited by:

    1. Richard E. Baldwin, 2011. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocks on the Path to Global Free Trade," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 2, Edward Elgar Publishing.
    2. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1531-1575.
    3. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
    4. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    5. 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.
    6. Bac, Mehmet & Raff, Horst, 1997. "A theory of trade concessions," Journal of International Economics, Elsevier, vol. 42(3-4), pages 483-504, May.
    7. 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.
    8. Emanuel Ornelas, 2000. "Free Trade Areas with Politically Active Oligopolies," Econometric Society World Congress 2000 Contributed Papers 1457, Econometric Society.
    9. Michael Lusztig & Patrick James, 2004. "How Does Free Trade Become Institutionalized? An Expected Utility Model of the Chretien Era," University of Western Ontario, Economic Policy Research Institute Working Papers 20044, University of Western Ontario, Economic Policy Research Institute.

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    More about this item

    Keywords

    trade policy;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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