Working Paper: NBER ID: w10826
Authors: Pravin Krishna; Devashish Mitra
Abstract: This paper shows how unilateral liberalization in one country can increase the voting support for reciprocal reduction in trade barriers in a partner country. When trade policies are determined simultaneously in the two countries, we show the possibility of multiple political equilibria - countries may both be protectionist or trade freely with each other. Starting with trade protection in both countries, a unilateral reform in one country is thus shown to bring about a free trade equilibrium (a self-enforcing state) that is consistent with majority voting in both countries.
Keywords: trade reforms; unilateral liberalization; reciprocity; majority voting
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unilateral trade liberalization (F13) | increase voting support for reciprocal reductions in trade barriers (F13) |
| reduction of tariffs by a partner country (F15) | increase world price of home country's exportable goods (F10) |
| increase world price of home country's exportable goods (F10) | lower relative price of importables (F14) |
| lower relative price of importables (F14) | affect wage dynamics in favor of export sectors (F16) |
| affect wage dynamics in favor of export sectors (F16) | shift preferences of previously opposing workers in the import-competing sector (F16) |
| shift preferences of previously opposing workers in the import-competing sector (F16) | increase majority support for free trade (F13) |