Correcting Trade Distortions in a Small Open Economy

Sajal Lahiri and Pascalis Raimondos ()

Review of International Economics, 1996, vol. 4, issue 3, 287-99

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 tax/subsidy 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. Copyright 1996 by Blackwell Publishing Ltd.

Date: 1996
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