Welfare Effects of Multilateral Tariff Reductions

• Published in: Southern economic journal Vol. 45; no. 3; pp. 760 - 772
• Main Author: Mutti, John H.
• Format: Journal Article
• Language: English
• Published: Chapel Hill, N.C., etc Southern Economic Association and the University of North Carolina at Chapel Hill 01.01.1979; Southern Economic Association and the University of North Carolina; Southern Economic Association
• Subjects: Balance of trade; Developing countries; Effects; Elasticity of demand; Exports; Foreign exchange rates; Imports; International trade; LDCs; Tariff reductions; Tariffs; Terms of trade; Trade agreements; Trade negotiation; Welfare; Welfare economics
• ISSN: 0038-4038; 2325-8012
• DOI: 10.2307/1057475

A static welfare methodology focusing on terms of trade changes is used to analyze the economic efficiency effects of tariff concessions made in the Kennedy Round of trade negotiations. The trade changes are calculated in import and export markets for each country, not for world trade. Each country (France, Germany, Japan, U.S.) is assumed to produce 2 types of products: exports and domestic goods that compete with imports. All goods are treated as final goods. The elasticity of supply is presumed to be infinite for the porduction of both goods. The welfare effect is calculated by determining the changes in imports and exorts resulting from tariff reductions. To represent the role of trade with leaser developed countries, 2 alternative models are presented. For the trade balance to remain stable, any change in the value of imports must be equaled by a change in the value of exports. Imbalances due to tariff reductions must be altered by an exchange rate shift. The empirically estimated welfare effects for the 4 countries are presented. These effects were calculated using information on pre-concession levels of trade, tariff concessions made, and the relevant supply and demand parameters. Appendices.