Comparative Advantage and Optimal Trade Policy

The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this paper we explore these issues in the context of a canonical Ricardian model. Our main results imply that optimal import tariffs should be uniform, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manipulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules.

• Publication year

  2013

• Venue

  Quarterly Journal of Economics

• Publication date

  2013-12-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1093/QJE/QJV007
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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