Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316574 
Authors: 
Year of Publication: 
2020
Citation: 
[Journal:] East Asian Economic Review (EAER) [ISSN:] 2508-1667 [Volume:] 24 [Issue:] 3 [Year:] 2020 [Pages:] 237-252
Publisher: 
Korea Institute for International Economic Policy (KIEP), Sejong-si
Abstract: 
This paper characterizes the optimal reciprocal trade policy in the environment of Melitz (2003) with firm productivity heterogeneity. In particular, without making parametric assumptions on firm productivity distribution, this paper derives the optimal degree of reciprocal tariff reductions that maximize the world welfare. A reciprocal import subsidy raises the industry productivity, lowering aggregate price; a reciprocal import tariff helps correct the markup distortion, increasing nominal income. With all the conflicting effects of import tariffs on welfare considered, the optimal degree of reciprocity in multilateral tariff reduction is shown to be free trade.
Subjects: 
Firm Heterogeneity
Reciprocal Trade Policy
Import Tariff
Markup Distortion
Aggregate Productivity
JEL: 
F12
F13
F15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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