Positive welfare effects of trade barriers in a dynamic partial equilibrium model

Jan Tuinstra, Michael Wegener and Frank Westerhoff

Journal of Economic Dynamics and Control, 2014, vol. 48, issue C, 246-264

Abstract: We develop a simple two-region, cobweb-type dynamic partial equilibrium model to demonstrate the existence of optimal, possibly non-zero, trade barriers. A pure comparative statics analysis of our model suggests that a reduction of trade barriers, modeled as small but positive import tariffs, always enhances welfare. However, taking a dynamic perspective reveals that nonlinear trade interactions between two regions may generate endogenous price fluctuations which can hamper welfare. Finally, we allow special interest groups, such as consumers or producers from these two regions, to lobby for a particular level of trade barriers. Our model predicts that time-varying trade barriers may be another channel for market instability.

Keywords: Cobweb dynamics; Market interactions; Optimal trade barriers; Welfare analysis; Political economy of trade barriers (search for similar items in EconPapers)
JEL-codes: D72 F13 H21 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:48:y:2014:i:c:p:246-264

DOI: 10.1016/j.jedc.2014.06.015

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