A General Equilibrium Analysis of US Foreign Trade Policy

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MIT Press, 1992 - Business & Economics - 289 pages
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Using applied general equilibrium methods to analyze recent debates about the conductof U.S. foreign trade policy, de Melo and Tarr show that in terms of costs to the economy and toconsumers, nontariff barriers in textiles, automobiles, and steel have more than reversed thebenefits of cumulative tariff liberalization achieved in successive postwar GATT rounds.The authors'model is the first large-scale computer simulation of the effects of changes in U.S. import quotas.It begins with perfect competition, proceeds to imperfect factor markets, and then introducesincreasing returns to scale and imperfect product markets. The basic model and its variants arecarefully explained to show how valuable and sensible a tool the model is for analyzing trade policyand to facilitate understanding of the construction of a general equilibrium model. Tables andfigures are used extensively to illustrate the principles involved.A detailed introduction takes uptrade policy issues, argues for the superiority of a general equilibrium approach over the moretraditional partial equilibrium approach, and surveys previous studies of the cost of protection.The chapters that follow describe the basic general equilibrium model and its extentions andapplication to specific policies and industries. The authors summarize their results by explainingthe costs per job protected by quotas, the estimated costs of all quantitative restrictions, and thecomputation of tariffs with a welfare cost equivalent to that of quotas.Jaime de Melo is Professorat the University of Geneva and Senior Economist at the World Bank. David Tarr is a Senior Economistat The World Bank.

  

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Contents

Trade Policy Analysis in a OneSector General Equilibrium
15
The Basic General Equilibrium Trade Model
41
Quota Premium Rates and Rent Capture
65
Welfare Costs of usQuotas in Textiles and Apparel
85
Welfare Costs of Quantitative Restrictions under Different Factor
111
Welfare Costs of Quantitative Restrictions with Imperfect
145
Evaluation of Alternative Strategies
173
central elasticity case
185
Appendixes
203
Mapping of National Income and Product Accounts NIPA valueadded
207
US civilian employment by sector in 1984
214
B Elasticity Specification and Data Sources
229
imports for domestic goods in intermediate
231
Foreign direct investment in the us automobile industry
238
Notes
241
References
261

Conclusions
191
9J Tariff structures yielding costs equal to those of quotas central elasticity
200

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Page 262 - Baldwin, ed., Trade, growth and the balance of payments. Chicago: Rand McNally.

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About the author (1992)

Jaime de Melo is Professor at the University of Geneva and Senior Economist at the World Bank.

David Tarr is a Senior Economist at The World Bank.

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