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Should Smaller Countries Be More Protectionist? The Diversification Motive for Tariffs

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  • James Gaisford
  • Olena Ivus

Abstract

This paper examines the diversification motive for tariffs under trade-related uncertainty when there is incomplete international and domestic risk sharing. In the context of a two-country Ricardian continuum-of-sectors model with shocks to foreign technologies or preferences, tariffs allow a country to mitigate external risk by diversifying across sectors. Given sufficiently high risk and risk aversion, the optimality of tariffs depends primarily on a country's ability to diversify, rather than its market power, such that small countries gain most.

Suggested Citation

  • James Gaisford & Olena Ivus, 2014. "Should Smaller Countries Be More Protectionist? The Diversification Motive for Tariffs," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 845-862, September.
    • Handle: RePEc:bla:reviec:v:22:y:2014:i:4:p:845-862
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    References listed on IDEAS

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    Cited by:

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    2. Cecilia Bellora & Jean-Marc Bourgeon, 2014. "Agricultural Trade, Biodiversity Effects and Food Price Volatility," Working Papers hal-01052971, HAL.
    3. PAPACCIO, Anna, 2013. "Bilateralism and Multilateralism: a Network Approach," CELPE Discussion Papers 125, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    4. Cecilia Bellora & Jean-Marc Bourgeon, 2016. "Food trade, Biodiversity Effects and Price Volatility," Working Papers 2016-06, CEPII research center.

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