Trade Policy and Economic Welfare

Trade Policy and Economic Welfare

Trade Policy and Economic Welfare

Trade Policy and Economic Welfare


The second edition of this classic text on international economics includes three completely new chapters on the environment and trade policy, strategic trade policy, and the relationship between trade policy and the exchange rate. The first edition introduced a number of ideas into policycircles; the new edition has been shortened and substantially revised to point up the themes that have subsequently become prominent in discussions of free trade and protection. Trade Policy and Economic Welfare expounds the normative theory of trade policy. It includes discussion of static and dynamic arguments for protection; effects of trade policy on income distribution, monopoly, X-efficieny, foreign investment and capital accumulation; protection ofadvanced-technology industries; the choice between tariffs and subsidies as methods of protection. The chapters are self-contained to allow flexible use of the book in teaching undergraduate courses on international trade and the economics of developing countries.


This book deals with the normative theory of trade policy, primarily from the point of view of a single country. the first edition of this book has had a long and gratifying life, finally going out of print in 1994, after twenty years. Yet its topics and methodology are still very relevant, even though updating has been required, and even though there has been much trade liberalization since 1974, especially by developing countries.

For the second edition I have added three new chapters, on trade policy and the environment (Chapter 13), on strategic trade and industrial policy (Chapter 14), and on the relationship between trade policy, the exchange rate, and the current account (Chapter 15). Much of Chapter 13 is a direct application to a popular subject of the basic methodology of this book. Chapter 14 deals with a topic that has received much attention in the professional literature in the 1980s, and even more—to an excessive extent—in nonprofessional policy discussion. Chapter 15 draws heavily on many writings of mine since 1974 on trade policy and the macroeconomy, especially the exchange rate.

Coming to the other chapters, taken from the original book, the key chapter is Chapter 2 , which provides the framework for the whole book. Looking at these chapters now, after twenty years, and in the light of current discussion, the other chapter that seems to me most important and that I should like every teacher and student to study carefully is Chapter 8 on the infant industry argument. I have left this chapter as it was (apart from a few footnote changes) since it is totally relevant now, and also quite comprehensive. Many current arguments for protection, including some discussed in Chapter 14 on strategic trade and industrial policy, can be recognized in that chapter. Chapter 5 , on income distribution, contains the idea of the 'conservative social welfare function' which has received attention in the literature on the political economy of protection and is one reason (possibly the main one in later years) why the book has been much cited in the economic journals. Chapters 7 and 10 deal with topics that received little attention at the time the original book was written but that have become prominent since.

For this edition I have compressed the original book, eliminating completely two chapters (on employment and industrialization, and on cost-benefit analysis), and also cutting out various passages and sections which dealt with fine points or seem not very interesting now. I have made some improvements in exposition, but the basic theory is unchanged. Also, I have updated numerous footnotes.

In several passages of the original book the language was sexist. the editor and I have struggled to make the language more inclusive, but only succeeded

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