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THE RATIONALE FOR RECIPROCITY IN TRADE NEGOTIATIONS UNDER FLOATING CURRENCIES
Author(s) -
Roessler Frieder
Publication year - 1978
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.1978.tb00798.x
Subject(s) - subsidy , reciprocity (cultural anthropology) , economics , international economics , negotiation , multilateral trade negotiations , liberalization , free trade , payment , trade barrier , international trade , market economy , finance , psychology , social psychology , political science , law
SUMMARY In trade negotiations under fixed exchange rates governments insist on reciprocity mainly to ensure that the adverse impact of import barrier reductions on the balance‐of‐payments and on employment is offset through concurrent trade liberalization abroad. In negotiations under floating currencies reciprocity is not necessary for these purposes because governments can then liberalize unilaterally and let the resulting depreciation equilibrate payments and stimulate a reallocation of resources. In such negotiations reciprocity serves to reduce the political costs of trade liberalization. Applying D ownss ' economic theory of democracy, the paper shows that governments can win majority support for freer trade only if they subsidize the acquisition or use of information enabling producers and consumers benefitting from the reduction of import barriers to decide to favour the measures. Governments prefer to liberalize trade on a reciprocal basis because this creates easily demonstrable benefits for narrow interest groups and therefore reduces the need for such subsidization.