Welfare Reducing Trade and Optimal Trade Policy

E. Kwan Choi and Hamid Beladi

No 18513, Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem

Abstract: This paper shows that free trade reduces the welfare of a small country with unemployment unless the free trade price if the importable falls below the autarky equivalent price. A decline in the price of the importable from the autarky level not only improves the terms of trade but also reduces employment and production in the importable sector. A numerical example illustrates that the autarky equivalent price of the importable can be substantially lower than the autarky price. If an optimal tariff is used, however, restricted trade improves welfare above the autarky level.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 18
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:ags:hebarc:18513

DOI: 10.22004/ag.econ.18513

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