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Quarterly Journal of Economics Vol. 130 No. 2 2015

Comparative Advantage and Optimal Trade Policy *

Arnaud Costinot1,2,3,4,5; Dave Donaldson1,2,3,4,5; Jonathan Vogel1,2,3,4,5; Iván Werning1,2,3,4,5

1 National Bureau of Economic Research · 2 Princeton University · 3 Institut d'Etudes Politiques de Paris · 4 IIT@MIT · 5 Columbia University

open access

Abstract

The theory of comparative advantage is at the core of neoclassical trade theory. Yet we know little about its implications for how nations should conduct their trade policy. For example, should import sectors with weaker comparative advantage be protected more? Conversely, should export sectors with stronger comparative advantage be subsidized less? In this article we take a first stab at exploring these issues. Our main results imply that in the context of a canonical Ricardian model, optimal import tariffs should be uniform, whereas optimal export subsidies should be weakly decreasing with respect to comparative advantage, reflecting the fact that countries have more room to manipulate prices in their comparative-advantage sectors. Quantitative exercises suggest substantial gains from such policies relative to simpler tax schedules.

DOI
10.1093/qje/qjv007
Volume
130
Issue
2
Pages
659-702
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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