When Trade Liberalization Is Self-Fulfilling: Population Aging and Uncertainty
45 Pages Posted: 9 Sep 2015 Last revised: 14 Oct 2017
Date Written: October 12, 2017
Abstract
Expectation formation about future trade liberalization induces sectoral adjustment in advance and so the number of opposition decreases and trade liberalization can be self-fulfilling. We analyze this expectation formation mechanism in political process from two aspects: population aging and uncertainty. Then, we show that (i) the effect of population aging of workforce varies depending on a driving force of population aging and (ii) the effect of expectation formation is non-monotonic across ages and the largest in a middle-age cohort. Also, we analyze uncertainty about future trade liberalization. Then, we show that (iii) the mechanism cannot work due to strategic delay, but (iv) a subsidy scheme or political leadership can resolve this problem.
Keywords: Political Economy of Trade Policy, Skill Acquisition, Population Aging, Strategic Delay, Leadership
JEL Classification: F13, F16, D72, J14, J60
Suggested Citation: Suggested Citation