What drives unilateral liberalization? Evidence from Asia

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Unilateral trade liberalization is quite underdiscussed, perhaps for both institutional and political reasons. There is little reason for multilateral institutions like the WTO to discuss unilateral liberalization, since it is outside their purview and does little to hurt their missions, and policymakers pursuing trade agreements for political reasons have little interest in lowering their own trade barriers.

But unilateral liberalization is big. The World Bank attributes two-thirds of developing-country liberalization during 1983-2003 to unilateral actions.

In a recent working paper, Pierre-Louis Vezina analyses the case of East Asia, where he says countries unilaterally cut tariffs to attract Japanese FDI, as Japanese firms sought to establish affiliates that would process imported components.

Focusing my analysis on seven Asian emerging economies, and using tools from spatial econometrics, I show that tariffs on parts and components followed those of competing countries if the latter were lower, if FDI jealousy was high, and if competing countries were at a similar level of development, hence competing more intensively at the tariff level… I show that these results do not hold when using tariffs on finished products nor when estimating the model for countries that are not part of the sliced-up supply chain, such as Australia.

The one tome devoted to the topic that I know is Going Alone, edited by Jagdish Bhagwati.

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One Response to “What drives unilateral liberalization? Evidence from Asia”

  1. Erik van der Marel Says:

    Dear all,

    Interesting topic indeed! I recommend the following if you would like to read more on unilateral trade liberalization nowadays within a IPE context:

    http://www.iea.org.uk/files/upld-book432pdf?.pdf

    Have fun reading!

    All best, Erik

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