Comparative Advantage and Optimal Trade Policy

Dave Donaldson, Arnaud Costinot, Iván Werning and Jonathan Vogel

No 9765, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Comparative advantage; Ricardian model; Trade policy (search for similar items in EconPapers)
JEL-codes: F10 F11 F13 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (8)

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Journal Article: Comparative Advantage and Optimal Trade Policy (2015)
Working Paper: Comparative Advantage and Optimal Trade Policy (2013)
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