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Comparative Advantage and Optimal Trade Policy

Author

Listed:
  • Arnaud Costinot
  • Dave Donaldson
  • Jonathan Vogel
  • Iván Werning

Abstract

The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this article we take a first stab at exploring these issues. Our main results imply that in the context of a canonical Ricardian model, optimal import tariffs should be uniform, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manipulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules. JEL Codes: F10, F11, F13.

Suggested Citation

  • Arnaud Costinot & Dave Donaldson & Jonathan Vogel & Iván Werning, 2015. "Comparative Advantage and Optimal Trade Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 659-702.
  • Handle: RePEc:oup:qjecon:v:130:y:2015:i:2:p:659-702
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    File URL: http://hdl.handle.net/10.1093/qje/qjv007
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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