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Article
Should Smaller Countries Be More Protectionist? The Diversification Motive for Tariffs
Review of International Economics
(2014)
Abstract
This paper examines the diversification motive for tariffs under trade-related uncertainty when there is incomplete international and domestic risk sharing. In the context of a two-country Ricardian continuum-of-sectors model with shocks to foreign technologies or preferences, tariffs allow a country to mitigate external risk by diversifying across sectors. Given sufficiently high risk and risk aversion, the optimality of tariffs depends primarily on a country's ability to diversify, rather than its market power, such that small countries gain most.
Keywords
- Trade policy,
- uncertainty,
- diversification
Disciplines
Publication Date
2014
Citation Information
Gaisford, James and Olena Ivus. 2014. “Should Smaller Countries Be More Protectionist? The Diversification Argument for Tariff.” Review of International Economics, 22(4): 845-862