When trade liberalization is self†fulfilling: Population aging and uncertainty

Daiki Kishishita

Economics and Politics, 2018, vol. 30, issue 2, 274-306

Abstract: Expectation about future trade liberalization induces sectoral adjustment in advance. As a result, the extent of opposition to trade liberalization decreases, and liberalization becomes self†fulfilling. We analyze this mechanism from two aspects: population aging and uncertainty. Then, we show that (1) the effect of expectation formation is non†monotonic across ages, and (2) the effect of population aging of workforce varies depending on its driving force. In addition, we analyze uncertainty about future trade liberalization. Then, we show that (3) the mechanism cannot work due to strategic delay even under small uncertainty, but (4) a subsidy scheme can resolve this problem.

Date: 2018
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