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Trade Policy with Heterogeneous Traders

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  • Kala Krishna
  • Ling Hui Tan

Abstract

This paper considers the effects of trade policy-tariffs and quotas-when importing is done by competitive traders who are identical ex ante but differ ex post. We show that the standard equivalence results no longer hold and the conventional ranking of tariffs and quotas is turned on its head: quotas are not as bad for welfare as previously believed, while tariffs may restrict trade by more than originally intended. Furthermore, the allocation of property rights (quota licenses) has real effects beyond the distribution of rents; this, in turn, has implications for the effects of corruption on welfare.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/92.

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Length: 29
Date of creation: 01 Apr 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/92

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Related research

Keywords: Trade policy; Quotas; free trade; domestic market; free entry; quota rents; world market; consumer surplus; tariff revenue; producer surplus; international trade; social welfare; trade policies; trade restrictions; tariff equivalent; trade levels; perfect competition; world trade organization; imperfect competition; impact of trade; rent-seeking behavior; world trade; market structure; product differentiation; trade policy reform; trading partners; world supply; import quota; partial equilibrium; domestic economy; trade liberalization; tariff rate; imported good; quantitative restriction; domestic consumption; trade policy instruments; domestic consumers; balance of payments; world price;

This paper has been announced in the following NEP Reports:

References

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  1. Kala Krishna, 1990. "Export Restraints With Imperfect Competition: A Selective Survey," NBER Working Papers 3244, National Bureau of Economic Research, Inc.
  2. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  3. Rachel McCulloch, 1973. "When Are a Tariff and a Quota Equivalent:," Canadian Journal of Economics, Canadian Economics Association, vol. 6(4), pages 503-11, November.
  4. Richard E. Baldwin & Rikard Forslid, 2006. "Trade Liberalization with Heterogenous Firms," NBER Working Papers 12192, National Bureau of Economic Research, Inc.
  5. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  6. Jan Jørgensen & Philipp Schröder, 2005. "Welfare-ranking ad valorem and specific tariffs under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 228-241, February.
  7. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
  8. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  9. repec:rus:hseeco:122439 is not listed on IDEAS
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