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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.

Suggested Citation

  • Pao-Li Chang, 2010. "The Optimal Degree of Reciprocity in Tariff Reduction," Working Papers 32-2010, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:32-2010
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    References listed on IDEAS

    as
    1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    2. Demidova, Svetlana & Rodríguez-Clare, Andrés, 2009. "Trade policy under firm-level heterogeneity in a small economy," Journal of International Economics, Elsevier, vol. 78(1), pages 100-112, June.
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    More about this item

    Keywords

    Firm Heterogeneity; Reciprocal Trade Policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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