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A Ricardian Model with Endogenous Comparative Advantage and Endogenous Trade Policy Regimes

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  • Cheng, Wen Li
  • Liu, Meng-Chun
  • Yang, Xiaokai

Abstract

This paper develops a Ricardian model with transaction costs and endogenous and exogenous comparative advantages. It shows that the level of division of labour and trade increases as transaction conditions improve. It identifies the conditions for trade negotiations that result in zero tariff rates and the conditions for the coexistence of unilateral tariff protection and unilateral laissez faire policies. The model may explain the policy transformation of some European governments from Mercantilism to laissez faire in the 18th and 19th century and policy changes in developing countries from protection tariff to trade liberalization and tariff negotiation. Copyright 2000 by The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 76 (2000)
Issue (Month): 233 (June)
Pages: 172-82

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Handle: RePEc:bla:ecorec:v:76:y:2000:i:233:p:172-82

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  1. Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 14-93, Tel Aviv.
  2. Dixit, Avinash K & Kyle, Albert S, 1985. "The Use of Protection and Subsidies for Entry Promotion and Deterrence," American Economic Review, American Economic Association, vol. 75(1), pages 139-52, March.
  3. Gomory Ralph E., 1994. "A Ricardo Model with Economies of Scale," Journal of Economic Theory, Elsevier, vol. 62(2), pages 394-419, April.
  4. Henry J. Bruton, 1998. "A Reconsideration of Import Substitution," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 903-936, June.
  5. Bruton, H.J., 1998. "A Reconsideration of Import Substitution," Center for Development Economics 156, Department of Economics, Williams College.
  6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  7. Yang, Xiaokai & Borland, Jeff, 1991. "A Microeconomic Mechanism for Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 460-82, June.
  8. Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
  9. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
  10. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, December.
  11. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  12. Sun, Guang-Zhen & Yang, Xiaokai & Zhou, Lin, 2004. "General equilibria in large economies with endogenous structure of division of labor," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 237-256, October.
  13. Xiaokai Yang, 1994. "Endogenous vs. exogenous comparative advantage and economies of specialization vs. economies of scale," Journal of Economics, Springer, vol. 60(1), pages 29-54, February.
  14. Pincus, J J, 1975. "Pressure Groups and the Pattern of Tariffs," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 757-78, August.
  15. Pomfret, R., 1992. "International Trade Policy with Imperfect Competition," Princeton Studies in International Economics 17, International Economics Section, Departement of Economics Princeton University,.
  16. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  17. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
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Cited by:
  1. Xiaokai Yang & Dingsheng Zhang, 1999. "Endogenous Structure of the Division of Labor, Endogenous Trade Policy Regime, and a Dual Structure in Economic Development," CEMA Working Papers 11, China Economics and Management Academy, Central University of Finance and Economics, revised Apr 2000.
  2. Hazel Parcon, 2008. "Disaggregating PTAs at the Role of International Division of Labor on PTA Formation," Working Papers 200806, University of Hawaii at Manoa, Department of Economics.

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