The Anti-Export Implications of Trade Liberalization: The Case of Export-Market Uncertainty

Authors

  • Eduardo Bitrán Departamento de Ingeniería Industrial, Universidad de Chile image/svg+xml

Keywords:

trade liberalization, anti-export bias, import protection, export-market uncertainty, export insurance

Abstract

This paper intends to show that once the assumptions of the classical model of trade are relaxed, import protection will not necessarily imply a relative anti-export bias. In particular, assuming uncertainty in export markets, and with an incomplete insurance market, the reduction in the level of protection to a specific sector could reduce the incentive and/or the capability of firms to undertake risky export ventures. Policy conclusions cannot easily be derived from this paper. We show, with a partial equilibrium approach, that import protection may help exports. Nevertheless, the general equilibrium effects of protection, which are not taken into account in this analysis, will support the opposite conclusion. The use of tariff protection to correct for imperfections in the capital market or for the existence of non-convexities in the production process in general will not be the first-best policy. Export subsidies or some kind of export insurance can be more effective in promoting exports than tariff protection.

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References

Arrow, K. J. (1971). The theory of risk aversion. In Essays in the theory of risk bearing. Markham.

Balassa, B., & Associates. (1971). The structure of protection in developing countries. Johns Hopkins University Press.

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Eaton, J., & Grossman, G. (1985). Tariffs as insurance: Optimal commercial policy when domestic markets are incomplete. Canadian Journal of Economics, 18(2), 258–272. https://doi.org/10.2307/135134

Katz, E., Paroush, J., & Kahana, N. (1982). Price uncertainty and the price discriminating firm in international trade. International Economic Review, 23, 389–400. https://doi.org/10.2307/2526446

Krugman, P. (1984). Import protection as export promotion: International competition in the presence of oligopoly and economies of scale. In H. Kierzkowski (Ed.), Monopolistic competition and international trade. Oxford University Press.

Newbery, D., & Stiglitz, J. (1981). The theory of commodity price stabilization. Oxford University Press.

Newbery, D., & Stiglitz, J. (1984). Pareto inferior trade. Review of Economic Studies, 51(1), 1–12. https://doi.org/10.2307/2297701

Pratt, J. (1964). Risk aversion in the small and in the large. Econometrica, 32(1-2), 122–136.

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Published

1988-04-30

How to Cite

Bitrán, E. (1988). The Anti-Export Implications of Trade Liberalization: The Case of Export-Market Uncertainty. Economic Analysis Review, 3(1), 63–73. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/279

Issue

Vol. 3 No. 1 (1988)

Section

Articles

License

Copyright (c) 1988 Eduardo Bitrán

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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