Endogenous trade policy in general equilibrium: An interaction of redistribution rule, trade openness, and labor market condition

Abstract

Using a general equilibrium framework, the paper derives trade policy endogenously for a small country. It shows that, contrary to the existing literature, a lobbying industry is not guaranteed trade protection; it may even face trade taxes. Besides lobbying, trade policy depends on other factors such as the trade revenue distribution rule, income distribution across groups, trade openness, factor substitutability in production, industry employment size, and labor market flexibility. The paper also shows that the observed phenomenon of government preference for import tariffs over export subsidies—a long overdue puzzle—is an inherent outcome of lobbying equilibrium. It also shows that trade policies such as import tariffs and export taxes that have the same impact on economic market—Lerner symmetry (1936)—are driven by the same forces in the political market.

Optimal Trade Policies Under Product Differentiations

“…Likewise, Soderbery (2018) argued that the optimal tariffs vary in accordance to heterogeneous supply elasticities. Acharya (2018) revealed that lobbying has significant effects on trade policy, resulting in government preference for import tariffs over export subsidies. Moreover, Akcigit et al (2018) provided some empirical evidence of the potential welfare losses generated from tariffs.…”

Impact of United States and China trade war on largest trade partners’ of Lithuania export

“…Essentially, each country decides its own trade policy -are they open to trade with other countries, if so, what is the level of openness, is there any sectors that will be protected, are there any countries included into non-tradable partners list and so on. Usually trade policies aimed to the direction (Acharya, 2018) of two main externalities (or somewhere in between) such as trade liberalization or trade protection (Ito, Mukunoki, Tomiura, & Wakasugi, 2019) or sometimes called as free trade and protectionism (Acharya, 2018; Saha, 2019) which is measured by country's trade openness (Acharya, 2018). Commonly, any government interventionist policy that is trying to influence country's trade (except new trade agreements) is attributed to protectionism.…”