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Anti-trade Bias in Trade Policy and General Equilibrium

Author

Listed:
  • Limao Nuno

    () (University of Maryland)

  • Panagariya Arvind

    () (Columbia University)

Abstract

An important question that has continued to elude trade economists is why trade interventions are biased in favor of import-competing rather than exportable sectors. Indeed, as Philip Levy (1999) points out, under a set of neutrality assumptions, the dominant political-economy model, Grossman and Helpman (1994), predicts a pro-trade bias. We demonstrate that if we replace the almost partial equilibrium model with a general equilibrium model in the Grossman-Helpman political economy model, anti-trade bias may emerge even if we assume symmetric technologies, endowments and preferences across sectors provided that the elasticity of substitution in production exceeds unity. In addition, we show that ceteris paribus, in general equilibrium, increases in the imports-to-GDP ratio lower the endogenously chosen tariff and the production share of the import sector in GDP has an ambiguous effect.

Suggested Citation

  • Limao Nuno & Panagariya Arvind, 2004. "Anti-trade Bias in Trade Policy and General Equilibrium," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-21, September.
  • Handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:1:n:14
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    Cited by:

    1. Krishna, Pravin & Mitra, Devashish, 2008. "Reciprocated unilateralism in trade reforms with majority voting," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 81-93, February.
    2. Djerdjian, Daron O., 2009. "Economies of scale and trade policy: The median voter model revisited," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 479-487, June.
    3. Limao, Nuno & Panagariya, Arvind, 2007. "Inequality and endogenous trade policy outcomes," Journal of International Economics, Elsevier, vol. 72(2), pages 292-309, July.
    4. Tovar, Patricia, 2009. "The effects of loss aversion on trade policy: Theory and evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 154-167, June.

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