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Pitfalls in the theory of international trade policy: concertina reforms of tariffs and subsidies to high technology industries

  • J. P. Neary

This paper explores the links between international trade theory and the practice of trade and industrial policy in open economies, with special attention to three areas where theoretical lessons have been misunderstood in policy debates. I argue that the ''concertina rule'' for tariff reform justifies reductions in high tariffs, but not moves towards uniformity, and particularly not increases in low tariffs. I show that the basic principles of tariff reform are the same in unilateral, multilateral and customs union contexts. Finally, I show that the theory of strategic trade policy does not justify export subsidies to high-technology industries.

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File URL: http://eprints.lse.ac.uk/20341/
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 20341.

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Length: 34 pages
Date of creation: May 1997
Date of revision:
Handle: RePEc:ehl:lserod:20341
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  1. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-06, September.
  2. Leahy, Dermot & Neary, J Peter, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEPR Discussion Papers 1243, C.E.P.R. Discussion Papers.
  3. Dermot Leahy & J. Peter Neary, 1995. "International R&D rivalry and industrial strategy without government commitment," Working Papers 199512, School of Economics, University College Dublin.
  4. D Leahy & J.P. Neary, 1997. "R&D Spillovers and the Case for Industrial Policy in an Open Economy," CEP Discussion Papers dp0345, Centre for Economic Performance, LSE.
  5. Neary, James Peter, 1991. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Discussion Papers, Series II 147, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  6. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
  7. Leahy, Dermot & Neary, J Peter, 1998. "Strategic Trade and Industrial Policy Towards Dynamic Oligopolies," CEPR Discussion Papers 1968, C.E.P.R. Discussion Papers.
  8. Barbara J. Spencer & James A. Brander, 1983. "International R&D Rivalry and Industrial Strategy," NBER Working Papers 1192, National Bureau of Economic Research, Inc.
  9. Smith, Alasdair, 1982. "Some simple results on the gains from trade, from growth and from public production," Journal of International Economics, Elsevier, vol. 13(3-4), pages 215-230, November.
  10. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP 823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. W. E. Diewert & A. H. Turunen-Red & A. D. Woodland, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 199-215.
  12. 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.
  13. 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.
  14. Dixit, Avinash K, 1970. "On the Optimum Structure of Commodity Taxes," American Economic Review, American Economic Association, vol. 60(3), pages 295-301, June.
  15. J. Peter Neary & Albert G. Schweinberger, 1986. "Factor Content Functions and the Theory of International Trade," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 421-432.
  16. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  17. Nicholas Stern, 1986. "A Note on Commodity Taxation: The Choice of Variable and the Slutsky, Hessian and Antonelli Matrices (SHAM)," Review of Economic Studies, Oxford University Press, vol. 53(2), pages 293-299.
  18. Falvey, Rodney E., 1988. "Tariffs, quotas and piecemeal policy reform," Journal of International Economics, Elsevier, vol. 25(1-2), pages 177-183, August.
  19. James E. Anderson, 1997. "Trade Reform with a Government Budget Constraint," Boston College Working Papers in Economics 348., Boston College Department of Economics.
  20. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers 5020, National Bureau of Economic Research, Inc.
  21. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  22. Turunen-Red, Arja H & Woodland, Alan D, 1991. "Strict Pareto-Improving Multilateral Reforms of Tariffs," Econometrica, Econometric Society, vol. 59(4), pages 1127-52, July.
  23. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  24. Angus Deaton, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," Review of Economic Studies, Oxford University Press, vol. 46(3), pages 391-405.
  25. Rod Falvey, 1994. "Revenue enhancing tariff reform," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 175-190, March.
  26. Tatsuo Hatta, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 1-21.
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