lecture 2 - David Flashcards
what are the three elements of the welfare effects in words?
Adam smiths certitude, haberlers spillover and viners ambiguity
what is adam smiths certitude?
foreign firms gain when tariffs against them are eliminated (increase in the price of the exported good
what is haberler’s spillover?
third nations - thoes excluded from the tariff reductions- lose (fall in the price of the exported goods)
what is viners ambiguity?
trade creation effect with the partner has to be weighted against supply switching or trade diversion
are the welfare effects arising from the elimination of non tariff barriers always positive or always negative?
the welfare effects arising from the elimination of non tariff barriers are unambigously positive
why should countries join a customs union? isnt it better to implement a policy of unilateral liberalisation against the potential partener?
not necessarily since a country would not benefit of the tariff reduction implemented by partner in a CU
what are the empiracal challenges that arise due to ex ante studies?
quantifing the effects using a theoretical framework such as the one presented is complicated
what are the empirical challenges that arise due to ex post studies?
it is difficult to attribute increases in intra european trade or fall in trade with RoW to membership of a customs union
what does the empiracle literature say about the european union?
the consensus is that the trade creation effects exceeded the trade diversion effects in europe but the gains are small according to baldwin and venables(1995). there was little trade diversoon due to much of europes trade being intra european to begin with. the trade creation was also limited as initial trade barriers were low and so has been the volume of trade created. there are also limitations due to the perfect competition framework.
what is the framework for which we evalutate a customs union?
the assumptions made are:
1) perfect competition
2) full employment
3) no transport costs
4) perfect factor mobility for both capital and labour
5) forms optimise ( P=MR=MC)
6) consumers optimise ( P=MU)
what is the formula for the number of imports?
the formula is imports to home is equal to the demand from the home country minus the supply at home
what is the formula for the partners exports?
the formula is partners exports are equal to the supply of partner - the demand of the partner
what is the equation for the aggregate export supply curve?
the aggregate export supply curve is equal to the partners exports + the rest of the worlds exports
what is the equation for the world price at free trade?
the price at free trade is equal to the price when the marginal supply is equal to the marginal demand
what is the most favoured nation clause?
it is a clause which requires that the countries providing a trade concession to one trading partner must extend the same treatment to the others
