New Goods, Old Theory, and the Welfare Costs of Trade Restrictions

@inproceedings{Romer1993NewGO,
  title={New Goods, Old Theory, and the Welfare Costs of Trade Restrictions},
  author={Paul M. Romer},
  year={1993}
}
  • Paul M. Romer
  • Published 1993
  • Economics
  • The typical economic model implicitly assumes that the set of goods in an economy never changes. As a result, the predicted efficiency loss from a tariff is small, on the order of the square of the tariff rate. If we loosen this assumption and assume that international trade can bring new goods into an economy, the fraction of national income lost when a tariff is imposed can be much larger, as much as two times the tariff rate. Much of this paper is devoted to explaining why this seemingly… CONTINUE READING
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