Modeling, measuring, and compensating the adjustment costs associated with trade reforms

摘要: One of the most deeply rooted tenets in neoclassical economics is that movement toward freer international trade increases aggregate economic welfare. While it is generally understood that there are costs associated with the reallocation of resources induced by trade reforms, there has been surprisingly little research focused on modeling, characterizing, measuring, and analyzing these costs in the aggregate. 1 Matusz and Tarr (2000) provide a reasonably comprehensive survey of the state of the literature as it existed in the late 1990s. Even a cursory reading of that paper reveals that there was only a small handful of studies aimed explicitly at furthering our understanding of these costs. In the absence of more concrete research, the authors of that study pieced together bits and pieces of several dozen studies that were tangentially related to adjustment in order to argue that adjustment costs are likely small relative to the overall gains from liberalization.The work by Matusz and Tarr (ibid.) piqued our interest in the topic of adjustment costs, and much of our research since 2000 has been aimed at this topic. 2 This note is intended as a brief summary of our methodology and findings. Our approach is first to sketch a slightly simplified version of the model that we have found useful in our study of adjustment costs, and then follow this with a discussion of a variety of results that we have been able to tease from this model.