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

The implications of red-tape barriers (RTBs) under lobbying pressures differ markedly from those of traditional trade barriers. RTBs affect the extensive margin of trade and may respond in opposite ways to reductions in tariffs versus reductions in natural trade costs: The former induce a protectionist backlash that may reduce trade both at the intensive and extensive margin, whereas the latter may induce a reduction in RTBs magnifying the direct trade-increasing effects. Furthermore, if tariff commitments are optimized, the availability of RTBs limits the extent of tariff liberalization, and political uncertainty tends to increase the prevalence of RTBs.