A Political-Economy Theory of Trade Agreements

54 Pages Posted: 3 Jan 2006

See all articles by Giovanni Maggi

Giovanni Maggi

Yale University; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: October 2005

Abstract

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: Trade agreements, lobbying, domestic commitment

JEL Classification: D72, F13

Suggested Citation

Maggi, Giovanni and Rodríguez-Clare, Andrés, A Political-Economy Theory of Trade Agreements (October 2005). CEPR Discussion Paper No. 5321, Available at SSRN: https://ssrn.com/abstract=873508

Giovanni Maggi (Contact Author)

Yale University ( email )

New Haven, CT 06511
United States
203-432-3569 (Phone)

National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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