Welfare Reducing Trade and Optimal Trade Policy
AbstractIn contrast to some trade theorists' long-held beliefs, this study shows that free trade reduces the welfare of a small country with unemployment unless the free trade price of the importable falls below the autarky equivalent price. This study formulates a disequilibrium trade model with sticky money wages that has been generalized to fixed-price economies where output prices as well as wages are fixed, independent of excess demand or supply in the labor and goods markets. After describing the model and its solution, the authors discuss the implications of changing tariff rates on foreign products, construct a numerical example showing that their result is possible for many countries with unemployment, and analyze the issues of optimal tariff.
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Bibliographic InfoPaper provided by Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University in its series Food and Agricultural Policy Research Institute (FAPRI) Publications with number 98-wp196.
Date of creation: Aug 1998
Date of revision:
Other versions of this item:
- Choi, E. Kwan & Beladi, Hamid, 1998. "Welfare Reducing Trade and Optimal Trade Policy," Staff General Research Papers 1287, Iowa State University, Department of Economics.
- E. Kwan Choi & Hamid Beladi, 1998. "Welfare Reducing Trade and Optimal Trade Policy," Center for Agricultural and Rural Development (CARD) Publications 98-wp196, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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