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The Optimal Degree of Reciprocity in Tariff Reduction

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  • Pao-Li Chang

    ()
    (School of Economics, Singapore Management University)

Abstract

This article clari es the roles played by trade policy, in contrast with iceberg transport cost, in the popular setting of Melitz (2003), and characterizes the optimal reciprocal trade policy in such a setting. I show that import tariffs and iceberg transport cost are not equivalent in the strength of their trade- restricting effects and their welfare implications. With all the conflicting effectsof import tariffs on welfare considered, the optimal degree of reciprocity in multilateral tariff reduction turns out to be free trade.

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Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 32-2010.

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Length: 13 pages
Date of creation: Dec 2010
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:32-2010

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Keywords: Firm Heterogeneity; Reciprocal Trade Policy;

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  1. Svetlana Demidova & Andrés Rodríguez-Clare, 2007. "Trade Policy under Firm-Level Heterogeneity in a Small Economy," NBER Working Papers 13688, National Bureau of Economic Research, Inc.
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