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Welfare Reducing Trade and Optimal Trade Policy

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  • Choi, E. Kwan
  • Beladi, Hamid

Abstract

This paper shows that free trade reduces the welfare of a small country with unemployment unless the free trade price if the importable falls below the autarky equivalent price. A decline in the price of the importable from the autarky level not only improves the terms of trade but also reduces employment and production in the importable sector. A numerical example illustrates that the autarky equivalent price of the importable can be substantially lower than the autarky price. If an optimal tariff is used, however, restricted trade improves welfare above the autarky level.
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Suggested Citation

  • Choi, E. Kwan & Beladi, Hamid, 1998. "Welfare Reducing Trade and Optimal Trade Policy," Staff General Research Papers Archive 1287, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:1287
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    Cited by:

    1. Yoshiyasu Ono, 2010. "Trade Policy, Exchange Rate Adjustment and Unemployment," Chapters, in: Noel Gaston & Ahmed M. Khalid (ed.), Globalization and Economic Integration, chapter 7, Edward Elgar Publishing.
    2. Yoshiyasu Ono, 2014. "International Economic Interdependence and Exchange-rate Adjustment under Persistent Stagnation," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 70-92, March.
    3. Chi-Chur Chao & Chong Yip, 2001. "Non-traded goods and optimal trade policy in a cash-in-advance economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(1), pages 23-37.
    4. Chi-Chur Chao & Chong Yip, 2000. "Urban unemployment and optimal trade policy in a cash-in-advance economy," Journal of Economics, Springer, vol. 71(1), pages 59-77, February.

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