A Dynamic Optimal Trade Facilitation Policy

Nasreen Nawaz

MPRA Paper from University Library of Munich, Germany

Abstract: The existing literature regarding the impact of trade facilitation in terms of export volume, per capita GDP, etc., only considers the market equilibria (before and after trade facilitation) to compare and account for the efficiency gains. However, when a trade facilitation measure is introduced by a government, the cost of the foreign producer gets a downward jump to the extent of costs reduced due to trade facilitation policy. This affects the quantity of imports and the market gets out of equilibrium. The market supply and demand of the commodity for which the trade facilitation measure is adopted, gets adjusted over time until the post-policy equilibrium arrives. The mechanism regarding the adjustment of price is based on the lack of coordination among buyers and sellers at the exisiting prices. Efficiency losses on the adjustment path are not taken into consideration when the efficiency gains of trade facilitation are computed in the exisiting literature. In this article, an optimal trade facilitation policy subject to a cost constraint has been derived, which minimizes the efficiency losses on the adjustment path, while the gains in the equilibrium, from the trade facilitation policy are accounted for.

Keywords: Trade Facilitation Policy; Trade Facilitation Cost; Dynamic Efficiency; Price Adjustment Path; Equilibrium (search for similar items in EconPapers)
JEL-codes: F10 F11 F13 H20 H21 H30 H54 (search for similar items in EconPapers)
Date: 2019-08-30, Revised 2020-04-23
References: View references in EconPapers View complete reference list from CitEc
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Published in The International Trade Journal 36.2(2022): pp. 102-122

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