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Correcting Trade Distortions in a Small Open Economy
Author(s) -
Lahiri Sajal,
Raimondos Pascalis
Publication year - 1996
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.1996.tb00105.x
Subject(s) - small open economy , economics , variety (cybernetics) , open economy , competition (biology) , welfare , duality (order theory) , international economics , macroeconomics , market economy , monetary policy , computer science , ecology , mathematics , discrete mathematics , artificial intelligence , biology , exchange rate
This paper considers the second‐best strategy of correcting a wide variety of trade distortions in a small open economy with perfect competition in all markets. Using the tools of duality, we obtain some general properties of the structure and the levels of the optimal taxlsubsidy rates. The paper also analyzes the welfare effects of unilateral piecemeal trade policy reforms when some of the quota distortions—imposed by the foreign countries—are unalterable. It is shown that the merits of unilateral trade policy reforms that are emphasized in the literature crucially depend on the absence of unalterable foreign imposed quotas.