Conditional versus unconditional trade concessions for developing countries

Paola Conconi and Carlo Perroni

Canadian Journal of Economics/Revue canadienne d'économique, 2012, vol. 45, issue 2, 613-631

Abstract: 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. On examine comment la relation avec un important partenaire commercial affecte l’habileté du gouvernement d’un petit pays à soutenir le libre échange à l’aide d’un mécanisme de réputation. La libéralisation inconditionnelle par le grand partenaire a un effet ambigu sur les incitations dynamiques du petit pays. La libéralisation via un accord réciproque par lequel le grand pays réduit ses tarifs à condition que le petit pays fasse de même est un arrangement qui est supérieur à la libéralisation inconditionnelle comme façon de promouvoir des réformes commerciales et de renforcer la crédibilité du petit pays. Cependant, si la capacité dans le secteur qui concurrence les importations ne peut être réduite que graduellement, un accord conditionnel réciproque peut requérir un échange de concessions asynchroniques, où le grand pays se libéralise avant le petit.

Date: 2012
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https://doi.org/10.1111/j.1540-5982.2012.01711.x

Related works:
Journal Article: Conditional versus unconditional trade concessions for developing countries (2012)
Working Paper: Conditional versus Unconditional Trade Concessions for Developing Countries (2012)
Working Paper: Conditional versus Unconditional Trade Concessions for Developing Countries (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:45:y:2012:i:2:p:613-631

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