Measuring the Restrictiveness of International Trade Policy

by Anderson, James E.; Neary, J. Peter

• ISBN13: 9780262012201
• ISBN10: 0262012200
• Format: Hardcover
• Copyright: 2005-12-01
• Publisher: Mit Pr

Summary

A country's stance on international trade is an important component of its economic welfare. Yet relatively little theoretical attention has been paid to developing accurate methods to assess trade policies, leaving practitioners and policy makers with ad hoc solutions that lack theoretical foundation. In this book, James Anderson and Peter Neary present a new approach to gauging trade restrictiveness. Extending the standard theory of index numbers that apply to prices, output, or productivity, Anderson and Neary develop index numbers that apply directly to policy variables. Their theoretical work builds on, and extends, the standard theory of policy reform in open economics; their empirical findings illustrate how the new indexes can be applied and show the resulting difference in the assessment of trade restrictiveness. Thus their book will be of interest to both theorists and practitioners. After giving a nontechnical introduction to the topic, which includes a discussion of the theoretical and practical failings of other methods of measurement, Anderson and Neary propose two new indexes, the welfare-equivalent uniform tariff and the import-volume-equivalent uniform tariff, and present the theoretical foundation for these methods. The empirical work that follows applies the new approach to a range of issues, including the trade restrictiveness of domestic distortions and the use of a computable general equilibrium model to calculate the proposed measures of trade restrictiveness.

Table of Contents

List of Figures	xi
List of Tables	xiii
Preface	xv
I. THE PROBLEM	1	(24)
Introduction	3	(4)
Measuring Trade Policy Restrictiveness: A Nontechnical Introduction	7	(18)
The Trade-Weighted Average Tariff	8	(3)
Alternative Weights: Current or Free Trade? Imports or Production?	11	(2)
Measures of Tariff Dispersion	13	(2)
The Welfare-Equivalent Uniform Tariff	15	(6)
The Import-Volume-Equivalent Uniform Tariff	21	(1)
Conclusion	22	(3)
Appendix: The Geometry of the Trade-Weighted Average Tariff	24	(1)
II. TRADE POLICY REFORM AND THE TRI	25	(170)
Tariff Reform in General Equilibrium	27	(18)
Household and Firm Behavior	27	(3)
The Trade Expenditure Function	30	(1)
Shadow Prices and the Marginal Cost of Tariffs	31	(3)
Welfare-Improving Tariff Changes: Radial Reductions and Concertina Reform	34	(3)
Welfare and Tariffs: A Diagrammatic Illustration	37	(4)
Conclusion	41	(4)
Appendix: Welfare-Improving Tariff Changes in a Large Open Economy	42	(3)
The Trade Restrictiveness Index	45	(16)
The True Cost-of-Living Index	45	(2)
The Balance-of-Trade Function	47	(1)
The Trade Restrictiveness Index	48	(3)
The TRI and the Trade-Weighted Average Tariff I	51	(4)
The TRI and the Trade-Weighted Average Tariff II	55	(3)
The TRI and the Cost of Protection	58	(1)
Conclusion	59	(2)
The Mercantilist Trade Restrictiveness Index	61	(14)
The MTRI	62	(2)
The MTRI and the TRI	64	(4)
The MTRI and the Trade-Weighted Average Tariff	68	(3)
Conclusion	71	(4)
Appendix: Properties of the Import Volume Functions	72	(3)
Trade Reform, Trade Restrictiveness, and Tariff Structure	75	(32)
Generalized Tariff Moments	77	(3)
Welfare and Trade Policy Reform	80	(4)
Welfare Effects of Tariff Reforms That Reduce Dispersion	84	(4)
Market Access and Changes in Tariff Moments	88	(4)
Tariff Changes and Market Access	92	(5)
Changes in the TRI and MTRI and Measures of Tariff Dispersion	97	(4)
Relating Generalized to Observable Moments	101	(3)
Conclusion	104	(3)
Trade Reform with Tariffs and Quotas	107	(24)
The Distorted Trade Expenditure Function	108	(2)
Rent-Sharing and the Welfare Cost of Quotas	110	(2)
Trade Reform without Restrictions on the Trade Expenditure Function	112	(3)
Restricting the Trade Expenditure Function	115	(4)
Quota Reform	119	(3)
Tariff Reform in the Presence of Quotas	122	(2)
Alternative Rent-Sharing Rules	124	(1)
Conclusion	125	(6)
Appendix	126	(5)
The TRI and MTRI with Quotas	131	(16)
The TRI with Tariffs and Quotas	131	(4)
Equi-restrictive Quotas Following Changes in Exogenous Variables	135	(2)
Quotas and the MTRI	137	(1)
Conclusion	138	(9)
Appendix A: Neutral Growth and the Restrictiveness of Quotas	138	(1)
Appendix B: Partial Equilibrium Antecedents of the TRI and MTRI	139	(8)
Alternative Economic Environments	147	(22)
Trade Restrictiveness in a Large Country	148	(5)
External Scale Economies	153	(3)
Monopolistic Competition	156	(6)
Conclusion	162	(7)
Appendix A: Details of the Two-Country Model	163	(1)
Appendix B: Multicountry Trade Policy	164	(5)
Aggregating Trade Restrictions in Modeling	169	(26)
Demand Estimation	169	(1)
Simulation Models	170	(4)
Inference of Trade Costs	174	(11)
Openness and Growth Regressions	185	(10)
Appendix: Multilateral Resistance in the Generalized Gravity Model	189	(6)
III. APPLICATIONS	195	(114)
A General Framework for Measuring Policy Restrictiveness	197	(4)
Other Policy Distortions	201	(24)
Import Subsidies and Export Distortions	201	(3)
The Trade Restrictiveness of Domestic Distortions	204	(8)
An Application: The Trade Restrictiveness of Mexican Agricultural Policy	212	(3)
Conclusion	215	(10)
Appendix A: Effects of Factor-Market Distortions	215	(3)
Appendix B: Complex Trade Policies	218	(7)
Alternative Reference Points	225	(24)
Sector-Specific Income	225	(16)
Effective Protection in the United States: An Application	241	(5)
Other Sectoral Reference Points	246	(2)
Conclusion	248	(1)
Quantity Aggregates	249	(26)
The Quantity Analogue of the TRI	250	(3)
The Quantity Analogue of the MTRI	253	(1)
Duality and Policy Distance Functions	253	(3)
Relation to the Coefficient of Resource Utilization	256	(2)
Application I: The Multi-Fibre Arrangement	258	(12)
Application II: The Trade Restrictiveness of US Dairy Quotas	270	(5)
Measuring Trade Restrictiveness in a Simple CGE Model	275	(30)
The Model	277	(6)
Data and Data Compromises	283	(1)
Measures of Trade Restrictiveness	284	(10)
Conclusion	294	(11)
Appendix: The CES-CET Model	294	(11)
Conclusion	305	(4)
References	309	(8)
Index	317