Correcting Trade Distortions in a Small Open Economy |
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| Authors: | Sajal Lahiri Pascalis Raimondos |
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| Institution: | Lahiri: University of Essex. Colchester, C03 4SQ, UK. Email: .;Raimondos: EPRU, Copenhagen Business School, Copenhagen, 1366 K., Denmark. Email: . The authors are grateful to Alan Woodland, Albert Schweinberger. and an anonymous referee for very helpful and constructive comments. Raimondos' research was financed by a grant from the Danish National Research Foundation. The first draft of this paper was written while Lahiri was visiting the Institute of Social and Economic Research, Osaka University. The authors acknowledge the above two organizations for their generosity |
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| Abstract: | 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. |
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