Trade Policy with Heterogeneous Traders: Do Quotas Get a Bum Rap?

April 1, 2007

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper considers the effects of trade policy-tariffs and quotas-when importing is done by competitive traders who are identical ex ante but differ ex post. We show that the standard equivalence results no longer hold and the conventional ranking of tariffs and quotas is turned on its head: quotas are not as bad for welfare as previously believed, while tariffs may restrict trade by more than originally intended. Furthermore, the allocation of property rights (quota licenses) has real effects beyond the distribution of rents; this, in turn, has implications for the effects of corruption on welfare.

Subject: Import quotas, Imports, International trade, Tariffs, Taxes, Trade liberalization, Trade policy

Keywords: Asia and Pacific, auction quota, average cost, entry, firm heterogeneity, free trade, free trade equilibrium, import equivalent, Import quotas, Imports, license price, market clearing price, quota allocation scheme, quota license, quota rent, quotas, specific tariff, supply price, tariffs, Trade liberalization, trade policy, WP

Pages:
29
Volume:
2007
DOI:
https://doi.org/10.5089/9781451866568.001
Issue:
092
Series:
Working Paper No. 2007/092
Stock No:
WPIEA2007092
ISBN:
9781451866568
ISSN:
1018-5941

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