Measuring the Gains from Trade—A Case Study of Pakistan's Trade with India

M. Afzal, Stephen E. Guisinger


The recent literature on the theory of tariffs and trade
restrictions has emphasized the optimality of free trade policies for
both developed and develop¬ing countries. There are exceptional cases in
which trade restrictions can be justified—when, for example, a country
has monopoly power in trade or when certain "second-best" conditions are
met.1 In general, however, it is believed that a country which imposes
restrictions on its trade suffers a decline in real income. A number of
studies for both developed and developing countries have estimated the
economic benefits that would accrue to these countries from the
elimination of all trade restrictions.* The purpose of this paper is to
provide a method for measuring the economic benefits that a country
would receive as the result of the elimination of a country-specific
restriction while maintaining all restrictions applying to commodities.
Methods of measuring the static gains to a country removing commodity
restrictions are already well known and need no further elaboration. The
elimination of a country-specific restriction on trade, however,
presents a slightly different problem of measurement since the
liberalization may affect only one portion of the country's trade and
give rise to foreign exchange savings as well as the familiar gains from
reduced producers' inefficiency and increased consumers'

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