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Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs, and Subsidies to High-Technology Industries

  • Neary, J. P.

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 theorical 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 suggest that the theory of strategic trade policy does not justify subsidies to high-technology industries.

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Paper provided by College Dublin, Department of Political Economy- in its series Papers with number 97/26.

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Length: 29 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:dublec:97/26
Contact details of provider: Postal:
Ireland; University College Dublin, Department of Political Economy, Centre for Economic Research, Belfield, Dublin 4

Phone: +353-1-7067777
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics/

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  1. 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.
  2. Neary, J Peter, 1991. "Cost Asymmetries in International Subsidy Games: Should Governments Help Winners or Losers?," CEPR Discussion Papers 560, C.E.P.R. Discussion Papers.
  3. James E. Anderson, 1996. "Trade Reform with a Government Budget Constraint," NBER Working Papers 5827, National Bureau of Economic Research, Inc.
  4. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
  5. 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.
  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. 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.
  8. 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.
  9. Leahy, Dermot & Neary, J Peter, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEPR Discussion Papers 1243, C.E.P.R. Discussion Papers.
  10. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  11. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April.
  12. Neary, J Peter & Schweinberger, Albert G, 1984. "Factor Content Functions and the Theory of International Trade," CEPR Discussion Papers 3, C.E.P.R. Discussion Papers.
  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. 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.
  15. 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.
  16. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
  17. Barbara J. Spencer & James A. Brander, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 707-722.
  18. 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.
  19. Dixit, Avinash K, 1970. "On the Optimum Structure of Commodity Taxes," American Economic Review, American Economic Association, vol. 60(3), pages 295-301, June.
  20. 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).
  21. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-06, September.
  22. Leahy, Dermot & Neary, J Peter, 1999. "R&D Spillovers and the Case for Industrial Policy in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 40-59, January.
  23. 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.
  24. Tatsuo Hatta, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 1-21.
  25. 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.
  26. 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.
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