Working Paper: CEPR ID: DP786
Authors: James E. Anderson; J. Peter Neary
Abstract: In this paper we develop techniques for measuring the trade policy equivalent of domestic distortions, using a distance function approach. Our measure, the Trade Restrictiveness Index, is shown to equal the uniform tariff which is welfare-equivalent to a given pattern of domestic taxes and subsidies. We extend the Index to incorporate taxes on non-traded goods and factor markets and illustrate its operationality with an application to liberalization in Mexican agriculture. We conclude that our Index has considerable potential in empirical work and as an aid to trade negotiators.
Keywords: trade policy; domestic distortions; producer and consumer subsidy equivalents; trade restrictiveness index
JEL Codes: F10; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Domestic policies, such as production taxes and subsidies (H29) | Trade patterns (F10) |
| Trade patterns (F10) | International trade dynamics (F14) |
| Domestic policies (H59) | Trade restrictiveness (F14) |
| Trade restrictiveness (F14) | Welfare effects of domestic policy structure (H19) |
| Changes in domestic policy (O24) | Trade restrictiveness (F14) |