A General Framework for Analysing Endogenous Trade Divergences

45 Pages Posted: 11 Jul 2008

See all articles by Patrick Paul Walsh

Patrick Paul Walsh

UCD; Institute for the Study of Labor (IZA)

Date Written: November 1991

Abstract

This paper gives a general framework for analysing a trade divergence that runs across both the New International trade theory and the traditional analysis of export policy. The source of the trade divergence, the motive for intervention and the analytical framework is shown to be the same in all models. The sign of the trade divergence and hence the policy recommendation is determined by the market structure chosen to endogenise the divergence. The magnitude of the subsidy in all models is determined by the maximum potential profitability of the home industry. It is argued that interpretations based on ?profit shifting? or on a ?terms of trade improvement? as a motive for trade intervention are misleading.

Suggested Citation

Walsh, Patrick Paul, A General Framework for Analysing Endogenous Trade Divergences (November 1991). LSE STICERD Research Paper No. EI04, Available at SSRN: https://ssrn.com/abstract=1158284

Patrick Paul Walsh (Contact Author)

UCD ( email )

University College Dublin
Belfield, Dublin Dublin 4
Ireland

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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