Uncertainty, Trade Integration and the Optimal Level of Protection in a Ricardian Model with a Continuum of Goods
This paper analyzes how increasing trade integration affects individual utility when the international specialization pattern is stochastic, i.e. when the number of varieties each country produces depends on the realization of a random variable. I employ a Ricardian continuum of goods model to show that in this case a trade off emerges. As in the standard model, higher trade integration reduces prices and increases expected real income. However, higher trade integration, reducing the number of active sectors in the economy, also increases the displacement cost the worker would suffer in a bad state (i.e. when the sector she is employed into has to close down because, ex-post, the foreign country’s competing sector results to be more efficient). The main result of the model is that there exists an optimal level of protection that it is higher the smaller the price reduction induced by trade integration and the more technologically similar are countries.
|Date of creation:||Oct 2006|
|Date of revision:||Nov 2008|
|Publication status:||Forthcoming in Structural Change and Economic Dynamics|
|Contact details of provider:|| Postal: Via Crescimbeni, 20 -62100 Macerata|
Web page: http://www2.unimc.it/dief
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.:
- Jonathan Eaton & Gene M. Grossman, 1985.
"Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 18(2), pages 258-272, May.
- Jonathan Eaton & Gene M. Grossman, 1981. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," NBER Working Papers 0797, National Bureau of Economic Research, Inc.
- Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
- Tom Krebs & Pravin Krishna & William Maloney, 2005.
"Trade Policy, Income Risk, and Welfare,"
NBER Working Papers
11255, National Bureau of Economic Research, Inc.
- Tom Krebs & Pravin Krishna, 2005. "Trade Policy, Income Risk and Welfare," 2005 Meeting Papers 271, Society for Economic Dynamics.
- Krebs, tom & Krishna, Pravin & Maloney, William, 2005. "Trade policy, income risk, and welfare," Policy Research Working Paper Series 3622, The World Bank.
- Tom Krebs & Pravin Krishna & William Maloney, 2004. "Trade Policy, Income Risk, and Welfare," Working Papers 2004-09, Brown University, Department of Economics.
- Dani Rodrik, 1997. "Trade, Social Insurance, and the Limits to Globalization," NBER Working Papers 5905, National Bureau of Economic Research, Inc.
- Luca De Benedictis & Marco Gallegati & Massimo Tamberi, 2007. "Semiparametric analysis of the specialization-income relationship," Applied Economics Letters, Taylor & Francis Journals, vol. 15(4), pages 301-306.
- Rodrik, Dani, 1996.
"Why do More Open Economies Have Bigger Governments?,"
CEPR Discussion Papers
1388, C.E.P.R. Discussion Papers.
- Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
- Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
- Samuel Bowles & Ugo Pagano, 2003.
"Economic Integration, Cultural Standardization and the Politics of Social Insurance,"
Department of Economics University of Siena
408, Department of Economics, University of Siena.
- Pagano Ugo & Samuel Bowles, 2003. "Economic Integration, Cultural Standardization,and the Politics of Social Insurance," Working Papers wp64, Political Economy Research Institute, University of Massachusetts at Amherst.
- Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
- Brainard, William C. & Cooper, Richard N., 1968. "Uncertainty and Diversification in International Trade," Food Research Institute Studies, Stanford University, Food Research Institute, issue 03.
- Jean Imbs & Romain Wacziarg, 2003.
"Stages of Diversification,"
- S. Lael Brainard, 1991. "Protecting Losers: Optimal Diversification, Insurance, and Trade Policy," NBER Working Papers 3773, National Bureau of Economic Research, Inc.
- Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
- David M. G. Newbery & Joseph E. Stiglitz, 1984. "Pareto Inferior Trade," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 1-12.
- R. Dornbusch & S. Fischer & P. A. Samuelson, 1976.
"Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods,"
178, Massachusetts Institute of Technology (MIT), Department of Economics.
- Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
- Hausmann, Ricardo & Klinger, Bailey, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," Working Paper Series rwp06-041, Harvard University, John F. Kennedy School of Government.
- Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57, January.
When requesting a correction, please mention this item's handle: RePEc:mcr:wpdief:wpaper00034. 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: (Silvana Tartufoli)
If references are entirely missing, you can add them using this form.