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Domestic Distortions and International Trade

  • Anderson, James E
  • Neary, J Peter

In this paper we develop techniques for measuring the trade policy equivalent of domestic distortions, using a distance function approach. Our measure, the Trade Restrictiveness Index, is shown to equal the uniform tariff which is welfare-equivalent to a given pattern of domestic taxes and subsidies. We extend the Index to incorporate taxes on non-traded goods and factor markets and illustrate its operationality with an application to liberalization in Mexican agriculture. We conclude that our Index has considerable potential in empirical work and as an aid to trade negotiators.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 786.

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Date of creation: Jun 1993
Date of revision:
Handle: RePEc:cpr:ceprdp:786
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  1. Jones, Ronald W, 1971. "Distortions in Factor Markets and the General Equilibrium Model of Production," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 437-59, May-June.
  2. Peter Neary, 1988. "Tariffs, Quotas, and Voluntary Export Restraints with and without Internationally Mobile Capital," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 714-35, November.
  3. Anderson, James E., 1992. "Tariff index theory," Policy Research Working Paper Series 1023, The World Bank.
  4. Neary, J Peter, 1989. "Trade Liberalization and Shadow Prices in the Presence of Tariffs and Quotas," CEPR Discussion Papers 345, C.E.P.R. Discussion Papers.
  5. Anderson, James E & Neary, J Peter, 1992. "A New Approach to Evaluating Trade Policy," CEPR Discussion Papers 683, C.E.P.R. Discussion Papers.
  6. Falvey, Rodney E., 1988. "Tariffs, quotas and piecemeal policy reform," Journal of International Economics, Elsevier, vol. 25(1-2), pages 177-183, August.
  7. Corden, W. Max & Falvey, Rodney E., 1985. "Quotas and the second best," Economics Letters, Elsevier, vol. 18(1), pages 67-70.
  8. 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.
  9. Bertrand, Trent J & Vanek, Jaroslav, 1971. "The Theory of Tariffs, Taxes, and Subsidies: Some Aspects of the Second Best," American Economic Review, American Economic Association, vol. 61(5), pages 925-31, December.
  10. Bruno, Michael, 1972. "Market Distortions and Gradual Reform," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 373-83, July.
  11. 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.
  12. James E. Anderson, 1988. "The Relative Inefficiency of Quotas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511789, June.
  13. Diewert, W. E., 1985. "A dynamic approach to the measurement of waste in an open economy," Journal of International Economics, Elsevier, vol. 19(3-4), pages 213-240, November.
  14. Magee, Stephen P, 1973. "Factor Market Distortions, Production, and Trade: A Survey," Oxford Economic Papers, Oxford University Press, vol. 25(1), pages 1-43, March.
  15. Jones, Ronald W. & Peter Neary, J., 1984. "The positive theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 1, pages 1-62 Elsevier.
  16. Anderson, James E. & Bannister, Geoffrey, 1992. "The trade restrictiveness index : an application to Mexican agriculture," Policy Research Working Paper Series 874, The World Bank.
  17. Neary, J Peter, 1978. "Dynamic Stability and the Theory of Factor-Market Distortions," American Economic Review, American Economic Association, vol. 68(4), pages 671-82, September.
  18. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
  19. Lloyd, P. J., 1974. "A more general theory of price distortions in open economies," Journal of International Economics, Elsevier, vol. 4(4), pages 365-386, November.
  20. Foster, Edward & Sonnenschein, Hugo, 1970. "Price Distortion and Economic Welfare," Econometrica, Econometric Society, vol. 38(2), pages 281-97, March.
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