When trade liberalization is self-fulfilling:
Population aging and uncertainty
Graduate School of Economics, The
University of Tokyo, Hongo, Bunkyo-ku,
Daiki Kishishita, Graduate School of
Economics, The University of Tokyo,
Hongo, Bunkyo-ku, Tokyo, Japan.
JSPS Grant-in-Aid for JSPS Research
Fellows, Grant/Award Number: 17J02113
Expectation about future trade liberalization induces sec-
toral adjustment in advance. As a result, the extent of
opposition to trade liberalization decreases, and liberal-
ization becomes self-fulfilling. We analyze this mecha-
nism from two aspects: population aging and uncertainty.
Then, we show that (1) the effect of expectation forma-
tion is non-monotonic across ages, and (2) the effect of
population aging of workforce varies depending on its
driving force. In addition, we analyze uncertainty about
future trade liberalization. Then, we show that (3) the
mechanism cannot work due to strategic delay even
under small uncertainty, but (4) a subsidy scheme can
resolve this problem.
Many economists argue that trade protection is Pareto inefficient. Nonetheless, trade liberalization
is achieved only partially. The reason is simple. People in protected industries face loss due to
trade liberalization, and this loss is difficult to be compensated perfectly.
Thus, losers oppose
trade liberalization. However, the opposition is mitigated by sectoral adjustment. If workers in
*I would like to thank the co-editor Devashish Mitra, an anonymous referee, Michihiro Kandori, Toshihiro Matsumura, and
Dan Sasaki for their helpful comments. This study was financially supported by JSPS Grant-in-Aid for JSPS Research
Fellows (17J02113). All remaining errors are my own.
The difficulties of lump sum transfer have been pointed out (e.g., Acemoglu, 2003; Acemoglu & Robinson, 2001; Coate
& Morris, 1995; Mitchell & Moro, 2006).
Received: 13 December 2016
Revised: 12 October 2017
Accepted: 7 December 2017
© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/ecpo Econ Polit. 2018;30:274–306.