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

Mar 2018 | 847

Authors: Peter Neary Giovanni Maggi, Monika Mrázová


Abstract

Red-tape barriers (RTBs) are an important source of trade costs, but have received little scholarly attention. Here we take a first step toward a theory of RTBs, and show that their implications are very different from those of more traditional trade barriers. Our model highlights that RTBs have important impacts on the extensive margin of trade, and yields rich predictions on how changes in the political-economic environment and product characteristics affect RTBs. Taking into account the endogenous response of RTBs is crucial to understanding the impact of reductions in tariffs and natural trade costs on the extensive and intensive margins of trade, as well as on welfare. Moreover, the availability of RTBs affects in important ways the tariff commitments that are specified in a trade agreement.

JEL Codes: F13, D7, F55

Keywords: International trade policy; Non-Tari Measures; Political economy; Red tape barriers; Trade agreements


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