Working Paper: NBER ID: w2756
Authors: Kyle Bagwell; Robert W. Staiger
Abstract: This paper proposes a theory that predicts low levels of protection during periods of "normal" trade volume coupled with episodes of "special" protection when trade volumes surge. This dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game setting facing volatile trade swings. High trade volume leads to a greater incentive to unilaterally defect from cooperative tariff levels. Therefore as the volume of trade expands, the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check.
Keywords: trade policy; managed trade; protectionism; tariffs; volatility
JEL Codes: F13; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade volume (F10) | protection levels (D18) |
| trade volume (F10) | incentive to defect from cooperative tariff levels (D43) |
| incentive to defect from cooperative tariff levels (D43) | protection levels (D18) |
| declining terms of trade (F14) | special protection measures (Y50) |