A Political-Economy Theory of Trade Agreements
Giovanni Maggi and
Andres Rodriguez-Clare ()
No 5321, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We develop a model where trade agreements - in addition to correcting terms-of-trade externalities - help governments to commit vis-a-vis domestic industrial lobbies. We explore how trade liberalization is affected by the characteristics of the political environment, such as the degree to which governments are politically motivated and the influence of lobbies during the negotiation of the agreement. We find that governments may prefer to commit to tariff ceilings, rather than exact tariff levels. We also find that trade liberalization is deeper when capital is more mobile across sectors. In a dynamic extension of the model, the optimal agreement entails an immediate slashing of tariffs followed by a phase of gradual trade liberalization. In the gradual phase, the speed of liberalization is higher when capital is more mobile.
Keywords: domestic commitment; lobbying; trade agreements (search for similar items in EconPapers)
JEL-codes: D72 F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-pol
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Journal Article: A Political-Economy Theory of Trade Agreements (2007)
Working Paper: A Political-Economy Theory of Trade Agreements (2005)
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