Smuggling and Bhagwati's Nonequivalence between Tariffs and Quotas

20 Pages Posted: 26 Jan 2003

See all articles by Bruno Larue

Bruno Larue

Université Laval

Harvey E. Lapan

Iowa State University - Department of Economics

Abstract

The authors extend Professor Bhagwati's analysis about the nonequivalence between trade policy instruments when domestic production is monopolized and the terms of trade are endogenous, by allowing for smuggling. They show that the dominance of the ad valorem tariff over the quota is not robust. Tariffication can lower welfare even when the level of illegal imports is quite small. However, tariffication with a specific tariff is always beneficial because the specific tariff dominates the ad valorem tariff and the quota with or without smuggling. Smuggling (or the threat) also tends to lower the second-best tariff/quota, and increases welfare when imports are restricted by a quota, but lowers it under a tariff.

Suggested Citation

Larue, Bruno and Lapan, Harvey E., Smuggling and Bhagwati's Nonequivalence between Tariffs and Quotas. Available at SSRN: https://ssrn.com/abstract=343186

Bruno Larue (Contact Author)

Université Laval ( email )

2425 rue de l'Agriculture
local 4417
Quebec, Quebec G1V 0A6
Canada
418 656 2131 x5098 (Phone)
418 656 7821 (Fax)

Harvey E. Lapan

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515 294-5917 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
14
Abstract Views
857
PlumX Metrics