I. Price behavior, 451.—II. Profit, price behavior, and cost efficiency, 452.—III. Mobility and long-run equilibrium, 453.—Conclusion, 454.

Both DC (developed country) tariffs and LDC (developing country) export taxes are "escalated" to protect local processors of primary commodities. The paper develops an analytical model of north-south commodity trade which is used to estimate the effects of reciprocal elimination of these trade barriers for eight commodities. It is estimated that processing would increase by 9 percent in the LDCs and decline by less than 1 percent in the DCs. The LDC export revenue for the eight-commodity sample would increase by 11 percent, or just over $1 billion (based on 1973 trade flows), which is considerably more than the estimated effect of the Generalized System of Preferences.