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A Political-Economy Theory of Trade Agreements

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  • Rodríguez-Clare, Andres
  • Maggi, Giovanni

Abstract

We develop a model where trade agreements - in addition to correcting terms-of-trade externalities - help governments to commit vis-a-vis domestic industrial lobbies. We explore how trade liberalization is affected by the characteristics of the political environment, such as the degree to which governments are politically motivated and the influence of lobbies during the negotiation of the agreement. We find that governments may prefer to commit to tariff ceilings, rather than exact tariff levels. We also find that trade liberalization is deeper when capital is more mobile across sectors. In a dynamic extension of the model, the optimal agreement entails an immediate slashing of tariffs followed by a phase of gradual trade liberalization. In the gradual phase, the speed of liberalization is higher when capital is more mobile.

Suggested Citation

  • Rodríguez-Clare, Andres & Maggi, Giovanni, 2005. "A Political-Economy Theory of Trade Agreements," CEPR Discussion Papers 5321, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5321
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    References listed on IDEAS

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    1. Robert Staiger, 1994. "A Theory of Gradual Trade Liberalization," International Trade 9410003, University Library of Munich, Germany, revised 21 Oct 1994.
    2. Devashish Mitra, 2016. "Endogenous political organization and the value of trade agreements," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 2, pages 23-35, World Scientific Publishing Co. Pte. Ltd..
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    5. 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.
    6. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Trade agreements; Lobbying; Domestic commitment;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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