On the Equivalence of Tariffs and Quotas for Customs Unions
While quotas can be expressed in tariff-equivalent terms and have identical economic effects under some conditions, they do not share the same welfare implications with tariffs in the presence of a piecemeal reform (second-best). In this paper we show that this non-welfare equivalence persists in perfect competition when countries undergo regional integration. A Pareto improving customs union is nevertheless viable in both protection regimes, but it requires different trade policy adjustments. When we extend the analysis beyond the competitive framework and consider shocks to the economy or imperfect markets, this general desirability of unions is unfortunately lost. But we show that, interestingly, the equivalence between tariff and quota regimes can still arise under particular circumstances, and only quotas provide countries with full insurance from price fluctuations.
|Date of creation:||13 Aug 2013|
|Contact details of provider:|| Postal: Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark|
Phone: 65 50 32 33
Fax: 65 50 32 37
Web page: http://www.sdu.dk/ivoe
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Corden, W. Max & Falvey, Rodney E., 1985. "Quotas and the second best," Economics Letters, Elsevier, vol. 18(1), pages 67-70.
- Panagariya, Arvind & Krishna, Pravin, 2002. "On necessarily welfare-enhancing free trade areas," Journal of International Economics, Elsevier, vol. 57(2), pages 353-367, August.
- 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.
- Falvey, Rodney E., 1988. "Tariffs, quotas and piecemeal policy reform," Journal of International Economics, Elsevier, vol. 25(1-2), pages 177-183, August.
- Robert W. Staiger & Kyle Bagwell, 1999.
"An Economic Theory of GATT,"
American Economic Review,
American Economic Association, vol. 89(1), pages 215-248, March.
When requesting a correction, please mention this item's handle: RePEc:hhs:sdueko:2013_011. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lene Holbæk)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.