Elhanan Helpman, Assaf Razin; Uncertainty and International Trade in the Presence of Stock Markets, The Review of Economic Studies, Volume 45, Issue 2, 1 June 1

I. Introduction, 489.—II. The model, 490.—III. A diagrammatical exposition of stock market equilibrium and the balance of payments, 495.—IV. Gains from trade, 499.—V. Commodity trade taxes and welfare losses, 501.

We examine the protective effect of a tariff in a small economy with uncertainty and a stock market in which shares of firms are traded. In a deterministic economy, the allocation of resources is governed by commodity prices; in our economy, it is governed by equity prices and is dependent on commodity prices only to the extent that they influence equity prices. We show that in the absence of international trade in securities a tariff need not protect the import competing sector. In the presence of international trade in securities, a tariff always protects the import competing sector.