Unilateral Tariff Liberalisation
Unilateral tariff liberalisation by developing nations is pervasive but our understanding of it is shallow. This paper strives to partly redress this lacuna on the theory side by introducing three novel political economy mechanisms with particular emphasis is on the role of production unbundling. One mechanism studies how lowering frictional barriers to imported parts can destroy the correlation of interests between parts producers and their downstream customers. A second mechanism studies how Kojima's pro-trade FDI raises the political economy cost of maintaining high upstream barriers. The third works via a general equilibrium channel whereby developing country's participation in the supply chains of advanced-nation industries undermines their own competitiveness in final goods, thus making final good protection more politically costly. In essence, developing nations' pursuit of the export-processing industrialisation undermines their infant-industry industrialisation strategies.
This paper was written for a special issue of The International Economy (the journal of the Japan Society of International Economics) in tribute to the late Professor Kiyoshi Kojima. As a great admirer of Professor Kojima's work and wisdom, I was honoured to be asked to help commemorate his life's work with this contribution. I would like to thank Caroline Freund, Paola Conconi, Bernard Hoekman, Pierre-Louis Vezina, Yose Damui, Ernesto Ornelas, an anonymous referee, and Special Issue editor Professor Ruyhei Wakasugi for helpful comments and suggestions that greatly improved the paper. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.