Reciprocity

Diffuse and Specific Reciprocity

We can distinguish two forms of reciprocity—specific and diffuse. Specific reciprocity is characterized by the involvement of a limited number of participants, each known to the others, who exchange items of equivalent value over a finite, delimited period of time. Initial offers are known to all and are made contingent on the granting of concessions of a roughly equivalent value by the other actors.

By contrast, diffuse reciprocity is less precise. Partners are viewed more as a group than as individual actors, and the sequence of exchange is more open. The expectation is not for equivalence of concessions in any one exchange, but rather a balance is expected over an ongoing, potentially indefinite, series of exchanges with a group of partners. A balance of concessions is not required between any two specific participants, but each individual actor expects to have a rough equivalence over time between the aggregate benefits it receives from the group as a whole and the overall concessions it makes. As such, reciprocity in this instance is more diffuse in character.

Relationship to Trade Liberalization

Reciprocity has its intellectual roots in mercantilist economics, in which increased exports are seen to be beneficial because they lead to inflows of foreign exchange and increased imports are conversely seen as harmful because they require an outflow of foreign exchange. Politicians and trade negotiators are generally considered to instinctively embrace mercantilist ideas, seeking each dollar's worth of increased imports arising from the granting of trade concessions to be balanced by concessions from trading partners worth a dollar in increased exports. Liberal trade theory, current economic orthodoxy, by contrast, sees liberalization of one's own trade policy as economically preferable to maintaining protectionist measures, regardless of whether or not one's trading partners reciprocate that liberalization. According to this view, import restrictions cause losses to a country's welfare that exceed the domestic gains. Therefore, neoclassical economists argue that a requirement of reciprocity in trade policy makes no economic sense. Furthermore, reciprocity may lead to higher tariffs being maintained even when those tariffs are economically harmful, as a requirement of reciprocity in trade negotiations encourages countries to stockpile such tariffs for use as bargaining chips in subsequent negotiations.

However, reciprocity can aid the trade liberalization process by creating political support for liberalization agreements. While protected industries will oppose liberalization measures that subject their markets to greater competition, the linking of the liberalization of the domestic market to liberalization by other countries via reciprocity helps to garner support from exporters that stand to gain from increased access to foreign markets. Therefore, reciprocity eases the difficult political process of undertaking trade liberalization by increasing the stake that exporters have in that process, encouraging them to put their political weight behind the trade agreement.

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