Working Paper: CEPR ID: DP5321
Authors: Giovanni Maggi; Andres Rodriguez-Clare
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: domestic commitment; lobbying; trade agreements
JEL Codes: D72; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade agreements (F13) | government commitment to tariff ceilings (F13) |
| government commitment to tariff ceilings (F13) | trade liberalization (F13) |
| capital mobility (F20) | trade liberalization (F13) |
| politically motivated governments (P26) | deeper trade liberalization (F13) |
| deeper trade liberalization (F13) | reduced adverse effects of liberalization on domestic lobbies (F69) |