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A Dynamic Optimal Trade Facilitation Policy

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  • Nawaz, Nasreen

Abstract

The existing literature regarding the impact of trade facilitation in terms of export volume, per capita GDP, etc., only considers the market equilibria (before and after trade facilitation) to compare and account for the efficiency gains. However, when a trade facilitation measure is introduced by a government, the cost of the foreign producer gets a downward jump to the extent of costs reduced due to trade facilitation policy. This affects the quantity of imports and the market gets out of equilibrium. The market supply and demand of the commodity for which the trade facilitation measure is adopted, gets adjusted over time until the post-policy equilibrium arrives. The mechanism regarding the adjustment of price is based on the lack of coordination among buyers and sellers at the exisiting prices. Efficiency losses on the adjustment path are not taken into consideration when the efficiency gains of trade facilitation are computed in the exisiting literature. In this article, an optimal trade facilitation policy subject to a cost constraint has been derived, which minimizes the efficiency losses on the adjustment path, while the gains in the equilibrium, from the trade facilitation policy are accounted for.

Suggested Citation

  • Nawaz, Nasreen, 2019. "A Dynamic Optimal Trade Facilitation Policy," MPRA Paper 118353, University Library of Munich, Germany, revised 23 Apr 2020.
    • Handle: RePEc:pra:mprapa:118353
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    Cited by:

    1. Ahmed, Muhammad Ashfaq & Nawaz, Nasreen, 2023. "Policy Formulation for an Optimal Level of Savings in a Dynamic Setting," MPRA Paper 121352, University Library of Munich, Germany, revised 29 Oct 2023.
    2. Ahmed, Muhammad Ashfaq & Nawaz, Nasreen, 2023. "Adam Smith's Perfectly Competitive Market is Not Pareto Efficient: A Dynamic Perspective," MPRA Paper 118362, University Library of Munich, Germany.

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    More about this item

    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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