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Whom to send to Doha? The Short-sighted Ones!

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  • Mario Larch

    (Universitaet Bayreuth)

  • Wolfgang Lechthaler

    (Institut fuer Weltwirtschaft)

Abstract

Analyses of the effects of trade policies focus on comparisons of two different steady states, restricting the investigation to the long run. In order to account for the adjustments and to capture the relevant transmission mechanisms of changes in trade costs, such as market size, entry and exit, as well as productivity changes of firms, we base our trade policy analysis on a dynamic new trade theory model. This approach has two advantages. (i) It allows us to take account of the transitional process after a change in tariffs. (ii) It allows us to take account of the shortsightedness of policy makers. We show that Nash-equilibrium tariffs based on a dynamic trade model are lower than Nash-equilibrium tariffs based on a static model. We also show that shortsighted politicians tend to set lower tariffs than politicians with a longer planning horizon. (Copyright: Elsevier)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 16 (2013)
Issue (Month): 4 (October)
Pages: 634-649

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Handle: RePEc:red:issued:11-281

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Keywords: Nash-equilibrium tariffs; Static trade model; Dynamic trade model;

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  1. Shortsightedness and tariffs
    by Economic Logician in Economic Logic on 2011-06-06 14:43:00

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