ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Protection and Exports

Protection and Exports Soumyen Sikdar DOES trade liberalisation give a boost to exports? On this question which is of considerable importance in the current Indian context professional opinion seems to be divided. Bose (1993) gives an affirmative answer. Since an import-substituting regime artificially bolsters the profitability of domestic sales, lower import tariffs would encourage exports by reducing the gap between the marginal revenues in the two markets. Marjit and Sarkar (1995) (henceforth MS) question this and on the basis of a simple micro-economic model of price discrimination claim that a lower tariff will reduce the level of exports. Thus they obtain the unexpected result that higher tariffs may serve as a strategy for promoting exports. Given their basic framework the logic is unassailable, although the highly partial nature of the analysis should make one wary of drawing policy conclusions. The purpose of this note is to state some reasons that make me feel uneasy about the framework and suggest a few modifications. The modifications which are not unrealistic have adverse implications for the main result.

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