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| Author: | Lahiri, S. Sheen, J. |
| Title: | Terms of trade vulnerability and national welfare in a small open economy |
| Journal: | Oxford Economic Papers
1990 : APR, VOL. 42:3, p. 526-543 |
| Index terms: | OPEN ECONOMY WELFARE WELFARE ECONOMICS BUSINESS ENVIRONMENT COMPETITION STOCHASTIC PROCESSES TRADE POLICY |
| Language: | eng |
| Abstract: | A later version of the ex-ante trading decision model and the ex-post commodity trading decision model is developed which involves a small open economy with all sectors operating in a perfectly competitive environment, and for simplicity, with only one sector facing an exogenous stochastic price process. Two extremes are considered. Firstly, risk neutral producers and risk averse consumers are assumed, and it is shown if the country is a net exporter on the risky good, it is optimal to tax that sector. If it is a net importer, the optimal policy may be a subsidy. Secondly, risk averse producers and risk neutral consumers are assumed. In this extreme economy, the above tax/subsidy conclusions are reversed. |
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