Working Paper: NBER ID: w13040
Authors: Kala Krishna; Ling H. Tan
Abstract: This paper considers the effects of trade policy--tariffs and quotas--when importing is done by competitive traders who are identical ex ante but differ ex post. We show that the standard equivalence results no longer hold and the conventional ranking of tariffs and quotas is turned on its head: quotas are not as bad for welfare as previously believed, while tariffs may restrict trade by more than originally intended. Furthermore, the allocation of property rights (quota licenses) has real effects beyond the distribution of rents; this, in turn, has implications for the effects of corruption on welfare.
Keywords: Trade Policy; Heterogeneous Traders; Quotas; Tariffs; Welfare; Corruption
JEL Codes: F1; F18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| allocation of quota licenses (D45) | entry of traders (F19) |
| entry of traders (F19) | welfare (I38) |
| allocation of quota licenses (D45) | welfare (I38) |
| corruption in quota license distribution (H57) | welfare (I38) |
| quota licenses sold (D45) | welfare (I38) |
| quota licenses given away (D45) | excessive entry (Y60) |
| excessive entry (Y60) | lower welfare (I38) |
| tariffs (F13) | greater restrictions on trade (F13) |
| quotas (C80) | higher welfare (I31) |
| anticipated corruption (H57) | discourage investment (F21) |
| anticipated corruption (H57) | enhance welfare (I30) |