A Political-Economy Theory of Trade Agreements

Giovanni Maggi and Andres Rodriguez-Clare

American Economic Review, 2007, vol. 97, issue 4, 1374-1406

Abstract: We present a model where trade agreements are motivated by the desire of governments to commit vis-à-vis domestic lobbies, in addition to standard terms-of-trade externalities. The model predicts that trade liberalization is deeper when capital is more mobile across sectors, and when governments are more politically motivated (provided domestic-commitment motives are strong enough). The model also provides a new rationale for the use of tariff ceilings. In a fully dynamic specification of the model, tariffs are reduced in two stages: an immediate cut and a subsequent gradual reduction, with the speed of liberalization increasing in the degree of capital mobility. (JEL D72, F13)

Date: 2007
Note: DOI: 10.1257/aer.97.4.1374
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Working Paper: A Political-Economy Theory of Trade Agreements (2005)
Working Paper: A Political-Economy Theory of Trade Agreements (2005)
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