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Comparative Advantage and Optimal Trade Policy

Author

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  • Costinot, Arnaud
  • Donaldson, Dave
  • Vogel, Jonathan
  • Werning, Iván

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 paper we explore these issues in the context of a canonical Ricardian model. Our main results imply that 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.

Suggested Citation

  • Costinot, Arnaud & Donaldson, Dave & Vogel, Jonathan & Werning, Iván, 2013. "Comparative Advantage and Optimal Trade Policy," CEPR Discussion Papers 9765, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9765
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    References listed on IDEAS

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    Cited by:

    1. Gourdon, Julien & Monjon, Stéphanie & Poncet, Sandra, 2016. "Trade policy and industrial policy in China: What motivates public authorities to apply restrictions on exports?," China Economic Review, Elsevier, vol. 40(C), pages 105-120.
    2. Datta, Manjira, 2017. "Existence and uniqueness of equilibrium in a distorted dynamic small open economy," Economics Letters, Elsevier, vol. 152(C), pages 19-22.
    3. Cecilia Bellora & Jean-Marc Bourgeon, 2014. "Agricultural Trade, Biodiversity Effects and Food Price Volatility," Working Papers hal-00969083, HAL.
    4. Nelson Lind & Natalia Ramondo, 2018. "Trade with Correlation," NBER Working Papers 24380, National Bureau of Economic Research, Inc.
    5. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    6. Dr. Deniz AYTAÇ & Dr. Sabiha KILIÇ, 2014. "The Short - And Long -Term Effects of Trade Taxes on Vertical Specialization," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(6), pages 732-743, June.
    7. Goya, Daniel, 2014. "Política industrial: Qué es, por qué es necesaria, y su pasado, presente y futuro en Chile
      [Industrial policy: What is it, why it is necessary, and its past, present and future in Chile]
      ," MPRA Paper 64881, University Library of Munich, Germany.
    8. repec:eee:inecon:v:108:y:2017:i:c:p:260-273 is not listed on IDEAS
    9. Ralph Ossa, 2016. "Quantitative Models of Commercial Policy," NBER Working Papers 22062, National Bureau of Economic Research, Inc.
    10. F. Langot & L. Patureau & T. Sopraseuth, 2014. "Fiscal Devaluation and Structural Gaps," Working papers 508, Banque de France.
    11. Langot, François & Lemoine, Matthieu, 2017. "Strategic fiscal policies in Europe: Why does the labour wedge matter?," European Economic Review, Elsevier, vol. 91(C), pages 15-29.
    12. F. Langot & M. Lemoine, 2014. "Strategic fiscal revaluation or devaluation: why does the labor wedge matter?," Working papers 516, Banque de France.
    13. NAITO Takumi, 2017. "A Larger Country Sets a Lower Optimal Tariff," Discussion papers 17037, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    Comparative Advantage; Ricardian Model; Trade Policy;

    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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