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Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs, and Subsidies to High-Technology Industries

  • Neary, J Peter

This paper explores the links between international trade theory and the practice of trade and industrial policy in open economies, with special attention to three areas where theoretical lessons have been misunderstood in policy debates. The author argues that the 'concertina rule' for tariff reform justifies reductions in high tariffs but not moves toward uniformity and particularly not increases in low tariffs. He shows that the basic principles of tariff reform are the same in unilateral, multilateral, and customs union contexts. Finally, the author suggests that the theory of strategic trade policy does not justify subsidies to high-technology industries. Copyright 1998 by The editors of the Scandinavian Journal of Economics.

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 100 (1998)
Issue (Month): 1 (March)
Pages: 187-206

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Handle: RePEc:bla:scandj:v:100:y:1998:i:1:p:187-206
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  1. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  2. Neary, James Peter, 1991. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Discussion Papers, Series II 147, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  3. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
  4. Smith, Alasdair, 1982. "Some simple results on the gains from trade, from growth and from public production," Journal of International Economics, Elsevier, vol. 13(3-4), pages 215-230, November.
  5. Rod Falvey, 1994. "Revenue enhancing tariff reform," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 175-190, March.
  6. Neary, J Peter & Schweinberger, Albert G, 1984. "Factor Content Functions and the Theory of International Trade," CEPR Discussion Papers 3, C.E.P.R. Discussion Papers.
  7. Stern, Nicholas, 1986. "A Note on Commodity Taxation: The Choice of Variable and the Slutsky, Hessian and Antonelli Matrices (SHAM)," Review of Economic Studies, Wiley Blackwell, vol. 53(2), pages 293-99, April.
  8. Barbara J. Spencer & James A. Brander, 1983. "International R&D Rivalry and Industrial Strategy," NBER Working Papers 1192, National Bureau of Economic Research, Inc.
  9. James E. Anderson, 1996. "Trade Reform with a Government Budget Constraint," NBER Working Papers 5827, National Bureau of Economic Research, Inc.
  10. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
  11. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP 823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers 5020, National Bureau of Economic Research, Inc.
  13. Falvey, Rodney E., 1988. "Tariffs, quotas and piecemeal policy reform," Journal of International Economics, Elsevier, vol. 25(1-2), pages 177-183, August.
  14. Diewert, W E & Turunen-Red, A H & Woodland, A D, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 199-215, April.
  15. Leahy, Dermot & Neary, J Peter, 1998. "Strategic Trade and Industrial Policy Towards Dynamic Oligopolies," CEPR Discussion Papers 1968, C.E.P.R. Discussion Papers.
  16. Neary, J Peter, 1995. "Trade Liberalisation and Shadow Prices in the Presence of Tariffs and Quotas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 531-54, August.
  17. Deaton, Angus, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 391-405, July.
  18. Turunen-Red, Arja H & Woodland, Alan D, 1991. "Strict Pareto-Improving Multilateral Reforms of Tariffs," Econometrica, Econometric Society, vol. 59(4), pages 1127-52, July.
  19. D Leahy & J.P. Neary, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEP Discussion Papers dp0270, Centre for Economic Performance, LSE.
  20. Dixit, Avinash K, 1970. "On the Optimum Structure of Commodity Taxes," American Economic Review, American Economic Association, vol. 60(3), pages 295-301, June.
  21. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-06, September.
  22. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  23. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  24. D Leahy & J.P. Neary, 1997. "R&D Spillovers and the Case for Industrial Policy in an Open Economy," CEP Discussion Papers dp0345, Centre for Economic Performance, LSE.
  25. Leahy, Dermot & Neary, J Peter, 1995. "International R&D Rivalry and Industrial Strategy without Government Commitment," CEPR Discussion Papers 1199, C.E.P.R. Discussion Papers.
  26. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
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