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A Ricardian Model with Endogenous Comparative Advantage and Endogenous Trade Policy Regimes

  • Cheng, Wen Li
  • Liu, Meng-Chun
  • Yang, Xiaokai

This paper develops a Ricardian model with transaction costs and endogenous and exogenous comparative advantages. It shows that the level of division of labour and trade increases as transaction conditions improve. It identifies the conditions for trade negotiations that result in zero tariff rates and the conditions for the coexistence of unilateral tariff protection and unilateral laissez faire policies. The model may explain the policy transformation of some European governments from Mercantilism to laissez faire in the 18th and 19th century and policy changes in developing countries from protection tariff to trade liberalization and tariff negotiation. Copyright 2000 by The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 76 (2000)
Issue (Month): 233 (June)
Pages: 172-82

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Handle: RePEc:bla:ecorec:v:76:y:2000:i:233:p:172-82
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  1. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  2. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-90, September.
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  6. Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
  7. Pomfret, R., 1992. "International Trade Policy with Imperfect Competition," Princeton Studies in International Economics 17, International Economics Section, Departement of Economics Princeton University,.
  8. Sun, Guang-Zhen & Yang, Xiaokai & Zhou, Lin, 2004. "General equilibria in large economies with endogenous structure of division of labor," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 237-256, October.
  9. Yang, Xiaokai & Borland, Jeff, 1991. "A Microeconomic Mechanism for Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 460-82, June.
  10. Henry J. Bruton, 1998. "A Reconsideration of Import Substitution," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 903-936, June.
  11. Xiaokai Yang, 1994. "Endogenous vs. exogenous comparative advantage and economies of specialization vs. economies of scale," Journal of Economics, Springer, vol. 60(1), pages 29-54, February.
  12. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, June.
  13. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  14. Gomory Ralph E., 1994. "A Ricardo Model with Economies of Scale," Journal of Economic Theory, Elsevier, vol. 62(2), pages 394-419, April.
  15. Pincus, J J, 1975. "Pressure Groups and the Pattern of Tariffs," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 757-78, August.
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  17. Tollison, Robert D, 1982. "Rent Seeking: A Survey," Kyklos, Wiley Blackwell, vol. 35(4), pages 575-602.
  18. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
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