This article clari.es the roles played by trade policy, in contrast with iceberg transport cost, in the popular setting of Melitz (2003), and characterizes the optimal reciprocal trade policy in such a setting. I show that import tariffs and iceberg transport cost are not equivalent in the strength of their trade-restricting e¤ects and their welfare implications. With all the con.icting effectsof import tari¤s on welfare considered, the optimal degree of reciprocity in multilateral tari¤ reduction turns out to be free trade.
Firm Heterogeneity, Reciprocal Trade Policy.
Economic Policy | Finance | International Business
CHANG, Pao Li.
The Optimal Degree of Reciprocity in Tariff Reduction. (2010). Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1162
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