Type

Working Paper

Authors

J. Peter Neary

Subjects

Economics

Topics
protectionism infant industry protection free trade commercial policy growth rate international trade small open economy international trade policy

International trade : Commercial policy (2001)

Abstract Following a brief historical introduction and a discussion of different types ofcommercial policy, this paper reviews the arguments for and against trade protection. In the bench-mark case of a competitive, small, open economy, free trade maximizes aggregate national welfare, although some individual groups will lose unless compensation is actually paid. Guidelines for policy include the uniform reduction and "concertina" rules for tariff cuts, and the principle of targeting: corrective measures should be applied as close to thesource of the "distortion" as possible. Relaxing the bench-mark assumptions allowsexceptions to the case for free trade: "optimal" tariffs to manipulate world prices; "strategic" tariffs or export subsidies when home firms engage in oligopolistic competition with foreignrivals; and infant industry protection to allow home firms benefit from learning by doing. Protection can also raise the growth rate, though it is less likely to raise welfare in a growing economy. Overall, with due allowance for some ambiguity, both theoretical arguments and empirical evidence suggest a pragmatic case for free trade. Finally, the paper notes thepolitical pressures for and against protection, and the role of international institutions such as the GATT in underpinning moves towards freer trade.
Collections Ireland -> University College Dublin -> Economics Working Papers & Policy Papers
Ireland -> University College Dublin -> School of Economics
Ireland -> University College Dublin -> College of Social Sciences and Law

Full list of authors on original publication

J. Peter Neary

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J. Peter Neary
University College Dublin
Total Publications: 79