Uncertainty, trade integration and the optimal level of protection in a Ricardian model with a continuum of goods
AbstractThis paper analyzes how increasing trade integration affects individual utility when the international specialization pattern is stochastic, i.e. when the number of varieties each country produces depends on the realization of a random variable. I employ a Ricardian continuum of goods model to show that in this case a trade off emerges. As in the standard model, higher trade integration reduces prices and increases expected real income. However, higher trade integration, reducing the number of active sectors in the economy, also increases the displacement cost the worker would suffer in a bad state (i.e. when the sector she is employed into has to close down because, ex-post, the foreign country’s competing sector results to be more efficient). The main result of the model is that there exists an optimal level of protection that it is higher the smaller the price reduction induced by trade integration and the more technologically similar are countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4645.
Date of creation: 2006
Date of revision:
Uncertainty; optimal protection; Ricardian model with a continuum of goods;
Other versions of this item:
- Di Maio, Michele, 2008. "Uncertainty, trade integration and the optimal level of protection in a Ricardian model with a continuum of goods," Structural Change and Economic Dynamics, Elsevier, vol. 19(4), pages 315-329, December.
- Michele Di Maio, 2006. "Uncertainty, Trade Integration and the Optimal Level of Protection in a Ricardian Model with a Continuum of Goods," Working Papers 34-2006, Macerata University, Department of Finance and Economic Sciences, revised Nov 2008.
- F19 - International Economics - - Trade - - - Other
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brainard, William C. & Cooper, Richard N., 1968. "Uncertainty and Diversification in International Trade," Food Research Institute Studies, Stanford University, Food Research Institute, issue 03.
- Rodrik, Dani, 1996.
"Why do More Open Economies Have Bigger Governments?,"
CEPR Discussion Papers
1388, C.E.P.R. Discussion Papers.
- Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
- Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
- R. Dornbusch & S. Fischer & P. A. Samuelson, 1976.
"Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods,"
178, Massachusetts Institute of Technology (MIT), Department of Economics.
- Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
- Luca De Benedictis & Marco Gallegati & Massimo Tamberi, 2007. "Semiparametric analysis of the specialization-income relationship," Applied Economics Letters, Taylor and Francis Journals, vol. 15(4), pages 301-306.
- Tom Krebs & Pravin Krishna & William Maloney, 2005.
"Trade Policy, Income Risk, and Welfare,"
NBER Working Papers
11255, National Bureau of Economic Research, Inc.
- Tom Krebs & Pravin Krishna & William Maloney, 2004. "Trade Policy, Income Risk, and Welfare," Working Papers 2004-09, Brown University, Department of Economics.
- Tom Krebs & Pravin Krishna, 2005. "Trade Policy, Income Risk and Welfare," 2005 Meeting Papers 271, Society for Economic Dynamics.
- Krebs, tom & Krishna, Pravin & Maloney, William, 2005. "Trade policy, income risk, and welfare," Policy Research Working Paper Series 3622, The World Bank.
- Imbs, Jean & Wacziarg, Romain, 2000.
"Stages of Diversification,"
CEPR Discussion Papers
2642, C.E.P.R. Discussion Papers.
- Jonathan Eaton & Gene M. Grossman, 1985.
"Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete,"
NBER Working Papers
0797, National Bureau of Economic Research, Inc.
- Jonathan Eaton & Gene M. Grossman, 1985. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 258-72, May.
- Hausmann, Ricardo & Klinger, Bailey, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," Working Paper Series rwp06-041, Harvard University, John F. Kennedy School of Government.
- Dani Rodrik, 1997. "Trade, Social Insurance, and the Limits to Globalization," NBER Working Papers 5905, National Bureau of Economic Research, Inc.
- Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
- Pagano Ugo & Samuel Bowles, 2003.
"Economic Integration, Cultural Standardization,and the Politics of Social Insurance,"
wp64, Political Economy Research Institute, University of Massachusetts at Amherst.
- Samuel Bowles & Ugo Pagano, 2003. "Economic Integration, Cultural Standardization and the Politics of Social Insurance," Department of Economics University of Siena 408, Department of Economics, University of Siena.
- Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
- Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
- Newbery, David M G & Stiglitz, Joseph E, 1984. "Pareto Inferior Trade," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 1-12, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.