Publication Type
Journal Article
Version
publishedVersion
Publication Date
9-2020
Abstract
This paper characterizes the optimal reciprocal trade policy in the environment of Melitz (2003) with firm productivity heterogeneity. In particular, without making parametric assumptions on firm productivity distribution, this paper derives the optimal degree of reciprocal tariff reductions that maximize the world welfare. A reciprocal import subsidy raises the industry productivity, lowering aggregate price; a reciprocal import tariff helps correct the markup distortion, increasing nominal income. With all the conflicting effects of import tariffs on welfare considered, the optimal degree of reciprocity in multilateral tariff reduction is shown to be free trade.
Keywords
Firm Heterogeneity, Reciprocal Trade Policy, Import Tariff, Markup Distortion, Aggregate Productivity
Discipline
Industrial Organization | International Economics
Research Areas
International Economics
Publication
East Asian Economic Review
Volume
24
Issue
3
First Page
237
Last Page
252
ISSN
2508-1640
Identifier
10.11644/KIEP.EAER.2020.24.3.378
Citation
1
Copyright Owner and License
Publisher CC-BY
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.11644/KIEP.EAER.2020.24.3.378