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Conditional versus unconditional trade concessions for developing countries
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Conconi, Paola and Perroni, Carlo (2011) Conditional versus unconditional trade concessions for developing countries. Working Paper. Coventry: Centre for Economic Policy Research. CEPR Discussion Paper (No.DP8253). (Unpublished)
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Official URL: http://www.cepr.org/pubs/dps/DP8253.asp
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 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 only be reduced gradually, a conditional, reciprocal agreement may require an asynchronous exchange of concessions, with the large country liberalizing before the small country.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Series Name: | CEPR Discussion Paper | ||||
Publisher: | Centre for Economic Policy Research | ||||
Place of Publication: | Coventry | ||||
Official Date: | February 2011 | ||||
Dates: |
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Number: | No.DP8253 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Unpublished |
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