Uncertainty and Trade Agreements

Nuno Limão and Giovanni Maggi

American Economic Journal: Microeconomics, 2015, vol. 7, issue 4, 1-42

Abstract: We explore conditions under which trade agreements can provide gains by reducing trade policy uncertainty. Given the degree of income risk aversion, this is more likely when economies are more open, export supply elasticities are lower, and economies more specialized. Governments have stronger incentives to sign trade agreements when the trading environment is more uncertain. As exogenous trade costs decline, the gains from reducing tariff uncertainty become more important relative to reducing average tariff levels. We also develop a simple "sufficient statistic" approach to quantify the gains from managing trade policy uncertainty, and examine the impact of ex ante investments on such gains. (JEL D81, F13)

JEL-codes: D81 F13 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mic.20130163
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Citations: View citations in EconPapers (61)

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Working Paper: Uncertainty and Trade Agreements (2013)
Working Paper: Uncertainty and Trade Agreements (2013)
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