Policy choice: Theory and evidence from commitment via international trade agreements

Nuno Limão and Patricia Tovar

Journal of International Economics, 2011, vol. 85, issue 2, 186-205

Abstract: Why do governments employ inefficient policies when more efficient ones are available for the same purpose? We address this puzzle in the context of redistribution toward special interest groups (SIGs) by focusing on a set of important policies: tariffs and non-tariff barriers (NTBs). In our policy choice model a government can gain by committing to constrain tariffs through international agreements even if this leads to the use of less efficient NTBs; commitment has political value because it improves the bargaining position of a government that is weak relative to domestic SIGs. Using detailed data we find support for several of the model's predictions including: (i) tariff commitments in trade agreements increase the likelihood and restrictiveness of NTBs but not enough to offset the original tariff reductions; (ii) tariff commitments are more likely to be adopted and more stringent when the government is weaker relative to a SIG. Thus, the results can explain the use of inefficient policies for redistribution and suggest that the bargaining motive is an important source of the political value of commitment in international agreements.

Keywords: Commitment; International agreements; Trade; Tariff; Non-tariff barrier; Political economy (search for similar items in EconPapers)
JEL-codes: C7 D7 F13 F5 H2 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (80)

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Related works:
Working Paper: Policy Choice: Theory and Evidence from Commitment via International Trade Agreements (2009)
Working Paper: Policy Choice: Theory and Evidence from Commitment via International Trade Agreements (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:85:y:2011:i:2:p:186-205

DOI: 10.1016/j.jinteco.2011.06.002

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