A Political-Economy Theory of Trade Agreements

By Giovanni Maggi, A. Rodríguez-Clare. 2007

300 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/ef48ae26b9acf7d7706151bca1f2c1de8d7e3b77

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Citations in the corpus

Tariff binding and overhang: Theory and evidence (2015, unknown): “In Maggi and Rodriguez-Clare (1998, 2007), however, the governments always apply a tariff equal to binding and, thus, no overhang is predicted by the theory. tariffs on the terms of trade of trading partners.”
Does regionalism affect trade liberalization towards non-members? (2008, background): “And Maggi and Rodriguez-Clare (2007) show that the negotiation of tariff ceilings (rather than of applied rates) in trade agreements is optimal because they keep lobbying activities alive, which in turn can mitigate overinvestment in protected sectors.”
The design of international trade agreements: Introducing a new dataset (2013, background): “Other prominent arguments stress the role of democratization, the distribution of power and alliances, ambitions to use international trade institutions as instruments to lockin or credibly commit to specific policies, domestic veto players within political systems, bureaucratic interests, electoral”
The Value of Making Commitments Externally: Evidence from WTO Accessions (2009, background): “…entails sweeping trade reforms across almost all industries, hence committing the government to trade liberalization for even the industries that it would not have opened up to trade has it not joined the WTO. c) Room for the government to grant protection ex post (Maggi and Rodriguez-Clare, 2007).”
A “New Trade” Theory of GATT/WTO Negotiations (2011, unknown): “V = �� (1 �)(1 �) LG � (27) V � = �� (1 �)(1 �) L�G� � ( 28 )”
Political Cleavages within Industry: Firm-level Lobbying for Trade Liberalization (2017, background): “, 1997), and political motivation (Maggi and Rodŕıguez-Clare, 2007) all play a role.”
Trade Liberalization, Antidumping, and Safeguards: Evidence from India's Tariff Reform (2011, background): “Our evidence is consistent with theories of trade agreements as a commitment device (e.g., Staiger and Tabellini, 1987; Maggi and Rodriguez-Clare 1998, 2007) and the concern that policy exceptions such as safeguards and antidumping reduce the credibility of trade liberalization announcements.”
Is the WTO Passé (2015, unknown): “Actually, like Maggi and Rodriguez-Clare (2007), Either combines two reasons for a trade agreement into one model.”