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Conditional versus unconditional trade concessions for developing countries

Paola Conconi () and Carlo Perroni

Canadian Journal of Economics, 2012, vol. 45, issue 2, 613-631

Abstract: We examine how trade liberalization by a large trading partner affects the ability of a small country's government to sustain free trade through a reputational mechanism. Unconditional liberalization by the large trading partner has an ambiguous effect on the small country's dynamic incentives. Liberalization through a reciprocal trade agreement, in which the large country lowers its tariffs conditionally on the small country doing the same, unambiguously dominates unconditional liberalization by the large country as a way of boosting trade reforms and reinforcing policy credibility in the small country. However, if capacity in the import-competing sector can be reduced only gradually, a conditional, reciprocal agreement may require an asynchronous exchange of concessions, where the large country liberalizes before the small country does.

JEL-codes: D72 D78 F13 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: Conditional versus Unconditional Trade Concessions for Developing Countries (2012) Downloads
Working Paper: Conditional versus Unconditional Trade Concessions for Developing Countries (2011) Downloads
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