Should Smaller Countries Be More Protectionist? The Diversification Motive for Tariffs
This paper examines the diversification motive for tariffs under trade-related uncertainty when there is incomplete international and domestic risk sharing. In the context of a two-country Ricardian continuum-of-sectors model with shocks to foreign technologies or preferences, tariffs allow a country to mitigate external risk by diversifying across sectors. Given sufficiently high risk and risk aversion, the optimality of tariffs depends primarily on a country's ability to diversify, rather than its market power, such that small countries gain most.
Year of publication: |
2014
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Authors: | Gaisford, James ; Ivus, Olena |
Published in: |
Review of International Economics. - Wiley Blackwell, ISSN 0965-7576. - Vol. 22.2014, 4, p. 845-862
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Publisher: |
Wiley Blackwell |
Saved in:
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