Anti-trade Bias in Trade Policy and General Equilibrium
An important question that has continued to elude
trade economists is why trade interventions are biased in favor of
import-competing rather than exportable sectors. Indeed, as Philip Levy (1999) points out, under a set of
neutrality assumptions, the dominant political-economy model, Grossman and
Helpman (1994), predicts a pro-trade bias. We demonstrate that if we replace the almost partial
equilibrium model with a general equilibrium model in the Grossman-Helpman
political economy model, anti-trade bias may emerge even if we assume symmetric
technologies, endowments and preferences across sectors provided that the
elasticity of substitution in production exceeds unity. In addition, we show that ceteris
paribus, in general equilibrium increases in the imports-to-GDP ratio lower the
endogenously chosen tariff and the production share of the import sector in GDP
has an ambiguous effect.
Keywords: trade policy; anti-trade bias.