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LeChatelier Principle and the Effects of Trade Policy under Induced Innovation
Department of Agricultural and Applied Economics, University of Wisconsin, Madison, USA
- 1 Department of Agricultural and Applied Economics, University of Wisconsin, Madison, USA
Theoretical Economics Letters·Volume 02 (2012)·Pages 239–251·Published 2 August 2012·DOI10.4236/tel.2012.23044
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Abstract
This paper explores the effects of trade policy under induced innovation in general equilibrium. The analysis considers the effects of discrete changes in tariffs and import quotas, allowing for heterogeneous technologies among firms. The interactions between induced innovation and the effects of trade policy give a set of “LeChatelier effects” comparing short run versus long run market equilibrium. We investigate how induced innovation can reduce the adverse effects of tariffs on trade, and influence the effects of quotas on corresponding quota rents. The analysis presents new LeChatelier results that apply globally, i.e. under any discrete change in trade policy.
KeywordsTrade PolicyTariffsQuotasInduced InnovationLeChatelier
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