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Conditional versus unconditional trade concessions for developing countries

Author

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  • Paola Conconi
  • Carlo Perroni
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.

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  • Paola Conconi & Carlo Perroni, 2012. "Conditional versus unconditional trade concessions for developing countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 613-631, May.
    • Handle: RePEc:wly:canjec:v:45:y:2012:i:2:p:613-631
    DOI: 10.1111/j.1540-5982.2012.01711.x
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    Cited by:

    1. Paola Conconi & Carlo Perroni, 2012. "Conditional versus unconditional trade concessions for developing countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 613-631, May.
    2. Baldwin, Richard, 2010. "Unilateral tariff liberalisation," CEPR Discussion Papers 8162, C.E.P.R. Discussion Papers.
    3. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    4. Conconi, Paola & Perroni, Carlo, 2015. "Special and Differential Treatment of Developing Countries in the WTO," World Trade Review, Cambridge University Press, vol. 14(1), pages 67-86, January.
    5. TOMIURA Eiichi & ITO Banri & MUKUNOKI Hiroshi & WAKASUGI Ryuhei, 2014. "Reciprocal Versus Unilateral Trade Liberalization: Comparing individual characteristics of supporters," Discussion papers 14067, Research Institute of Economy, Trade and Industry (RIETI).
    6. Bernard Hoekman, 2013. "Re-Thinking Economic Development in the WTO," RSCAS Working Papers PP2013/09, European University Institute.
    7. Bernard Hoekman, 2014. "Supply Chains, Mega-Regionals and Multilateralism: A Road Map for the WTO," RSCAS Working Papers 2014/27, European University Institute.
    8. Jaime DE MELO & Marcelo OLARREAGA, 2017. "Trade Related Institutions and Development," Working Papers P199, FERDI.

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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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