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Tariff Reductions, Terms Of Trade And Product Variety

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  • ANWESHA ADITYA AND RAJAT ACHARYYA

    (aIndia Institute of Technology Kharagpur, and Jadavpur University)

Abstract

In a two-country synthesis model we examine implications of a tariff reduction on the gains at extensive margin and the diversification of export basket through development of new varieties of a horizontally differentiated good. Through its resource allocation effect, the tariff reduction raises the number of varieties produced and exported by the Home country if the differentiated good is relatively labour intensive. Though, the worsening of terms of trade (TOT) consequent upon the tariff reduction has a dampening effect, overall, the number of varieties increases. The number of varieties produced and exported by the Foreign country, on the other hand, falls which makes the overall variety gains or gains at the extensive margin due to tariff reduction ambiguous.

Suggested Citation

  • Anwesha Aditya And Rajat Acharyya, 2016. "Tariff Reductions, Terms Of Trade And Product Variety," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(3), pages 75-103, September.
    • Handle: RePEc:jed:journl:v:41:y:2016:i:3:p:75-103
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • 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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