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

Author/Editor:

Kala Krishna ; Ling H Tan

Publication Date:

April 1, 2007

Electronic Access:

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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.

Series:

Working Paper No. 2007/092

Subject:

Import quotas Imports International trade Tariffs Taxes Trade liberalization Trade policy

English

Publication Date:

April 1, 2007

ISBN/ISSN:

9781451866568/1018-5941

Stock No:

WPIEA2007092

Pages:

29

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