Political Economy of Altering Trade Restrictions in Response to Commodity Price Spikes

Jayanthi Thennakoon

Review of Development Economics, 2015, vol. 19, issue 2, 434-447

Abstract: A model is developed to explain trade policy interventions in response to commodity price spikes. The model predicts that government preferences for averting losses for domestic interest groups lead to changes in trade distortions. In particular, trade interventions in response to downward price spikes are predicted, which is consistent with the proposal for a Special Safeguard Mechanism (SSM) in the World Trade Organization (WTO). Higher tariffs are likely in a noncooperative setting, and higher export subsidies will emerge in response. An efficient cooperative trade policy can be achieved in a repeated game setting and with possible involvement of the WTO.

Date: 2015
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