Endogenous trade uncertainty Why countries may specialize against comparative advantage
Using an approach where the probability of trade is a function of the volume of trade, we show that uncertainty in international trade may force a small economy to specialize in the production of the good in which it has a comparative disadvantage. This reversal in the pattern of incomplete specialization in production is not reflected in the trade pattern. The first-best policy responce in the presence of endogenous uncertainty is not the imposition of tariffs or subsidies but a reduction of trade uncertainty itself, possibly through clear commitment to free trade or GATT rules and procedures.
|Keywords||GATT, comparative advantage, internatioonal trade policy|
|Persistent URL||dx.doi.org/10.1016/0166-0462(93)90042-D, hdl.handle.net/1765/13091|
van Marrewijk, J.G.M., & van Bergeijk, P.A.G.. (1993). Endogenous trade uncertainty Why countries may specialize against comparative advantage. Regional Science and Urban Economics, 681–694. doi:10.1016/0166-0462(93)90042-D