CH 9

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Published on January 4, 2008

Author: Lassie

Source: authorstream.com

Chapter 9:  Chapter 9 The Political Economy of Trade Policy Economical and political context:  Economical and political context Arguments for free trade:  Arguments for free trade National welfare arguments against free trade:  National welfare arguments against free trade Improved terms of trade: If a large economy impose a tariff the PWM on their import good will decrease. => (PEX/PIM)↑ When the tariff is relatively low: Eff. Loss < terms of trade benefit When the tariff is relatively high: Eff. Loss > terms of trade benefit Point 1: Optimum tariff National welfare arguments against free trade:  National welfare arguments against free trade National welfare arguments against free trade:  National welfare arguments against free trade Slide17:  Two modern explanations of how trade policies are formed 2. Collective action => Most people do not care enough to take action to get rid of the tariffs, even though the total loss of consumers are substantial (because either the consumers are unaware of the tariffs, or the loss to the individual consumers, caused by tariffs, is relatively small) Even though the number of producers are relatively small, they often manage to convince the policy-maker in a favorable direction. The benefit of trade restrictions is often large for individual producers within the protected sector This is because small groups have strong incentives to organize and take action for their common interests. The smaller the group the easier it is to organize, and the potential benefit for each member will be larger => Lobbying! International negotiations and trade policy:  International negotiations and trade policy The World trade organization (WTO):  The World trade organization (WTO) The World trade organization (WTO):  The World trade organization (WTO) The World trade organization (WTO):  The World trade organization (WTO) The World trade organization (WTO):  The World trade organization (WTO) Slide23:  The World trade organization (WTO) Slide24:  The World trade organization (WTO) Famous trade conflict that has been solved within the WTO framework:  Famous trade conflict that has been solved within the WTO framework Summary:  Summary Summary:  Summary Summary:  Summary

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