Conditional Versus Unconditional Trade Concessions for Developing Countries - Concessions Commerciales Conditionnelles Et Inconditionnelles Pour Les Pays En Développement. 

19 Pages Posted: 4 May 2012

See all articles by Paola Conconi

Paola Conconi

Centre for Economic Policy Research (CEPR); Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Carlo Perroni

University of Warwick - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2012

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.

JEL Classification: D72, D78, F13

Suggested Citation

Conconi, Paola and Perroni, Carlo, Conditional Versus Unconditional Trade Concessions for Developing Countries - Concessions Commerciales Conditionnelles Et Inconditionnelles Pour Les Pays En Développement.  (May 2012). Canadian Journal of Economics/Revue canadienne d'économique, Vol. 45, Issue 2, pp. 613-631, 2012. Available at SSRN: https://ssrn.com/abstract=2050801 or http://dx.doi.org/10.1111/j.1540-5982.2012.01711.x

Paola Conconi (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 2 650 2345 (Phone)
32 2 650 4475 (Fax)

Carlo Perroni

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 7652 8416 (Phone)
44 24 7652 3032 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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