Trade Liberalization and Trade Adjustment Assistance

K.C. Fung, Robert W. Staiger

NBER Working Paper No. 4847
Issued in September 1994
NBER Program(s):   ITI

We explore the relationship between trade adjustment subsidies and successful reciprocal trade liberalization. We consider economies that are faced with a periodic need to move resources out of a declining import-competing sector, and that are attempting to sustain cooperative but self-enforcing trade agreements in the face of these adjustment needs. If the limitations associated with enforcement of international trade agreements are sufficiently severe, trade adjustment assistance can facilitate reciprocal trade liberalization. We argue that this suggests a possible efficiency rationale for adjustment policies that treat resources differently when traded sectors are involved.

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Published: The New Transatlantic Economy, Canzoneri, M., W. Ethier and V. Grilli,eds., Cambridge: Cambridge University Press, 1996.

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