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Conditional versus Unconditional Trade Concessions for Developing Countries

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  • Paola Conconi
  • Carlo Perroni

Abstract

We consider a small open economy that faces a commitment problem in trade liberalization. We examine how the relationship with a large trading partner affects the ability of the small countrys government to sustain free trade through a reputational mechanism. If the small country’s government is patient enough, it can overcome its domestic commitment without the help of the large country. Unconditional liberalization by the large trading partner has an ambiguous effect on the small countrys 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 only be re- duced gradually, a conditional, reciprocal agreement may require an asynchronous exchange of concessions, with the large country liberalizing before the small country.

Suggested Citation

  • Paola Conconi & Carlo Perroni, 2012. "Conditional versus Unconditional Trade Concessions for Developing Countries," ULB Institutional Repository 2013/98541, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/98541
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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

    Keywords

    Developing Countries; Commitment; Trade Concessions.;
    All these keywords.

    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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