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Reciprocity, World Prices and Welfare

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  • Pascalis Raimondos
  • Alan D. Woodland

Abstract

We examine in detail the circumstances under which reciprocity, as defined in Bagwell and Staiger (1999), leads to fixed world prices. We show that a change of tariffs satisfying reciprocity does not necessarily imply constant world prices in a world of many goods and countries. While it is possible to find tariff reforms that are consistent with both reciprocity and constant world prices, these reforms do not follow from the reciprocity condition, but rather from the requirement of unchanged world prices. We propose an alternative reciprocity rule that is guaranteed to raise the welfare of all countries, independently of whether world prices change and independently of the relative numbers of goods and countries.

Suggested Citation

  • Pascalis Raimondos & Alan D. Woodland, 2011. "Reciprocity, World Prices and Welfare," CESifo Working Paper Series 3607, CESifo.
  • Handle: RePEc:ces:ceswps:_3607
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3607.pdf
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    References listed on IDEAS

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    1. W. E. Diewert & A. H. Turunen-Red & A. D. Woodland, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(2), pages 199-215.
    2. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
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    Cited by:

    1. Jean-Christophe Bureau & Sébastien Jean, 2013. "Trade liberalization in the bio-economy: coping with a new landscape," Agricultural Economics, International Association of Agricultural Economists, vol. 44(s1), pages 173-182, November.

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    More about this item

    Keywords

    GATT; reciprocity; fixed world prices;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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