Choked By Red Tape? The Political Economy of Wasteful Trade Barriers

Red-tape barriers (RTBs) are an important source of trade costs, but have received little scholarly attention to date. Here we examine the economic-political determinants of RTBs and their effects on trade. Because of their wasteful nature, RTBs have very different implications from those of more traditional trade barriers. In particular, RTBs have important impacts on the extensive margin of trade, and respond in non-standard ways to changes in tariffs and natural trade costs. We argue that taking into account the endogenous response of RTBs is crucial for understanding the effects of tariff liberalization and globalization on trade and welfare.