Department of Agricultural and Resource Economics, UCB
A Neoclassical View of Trade Liberalization
- Author(s): Karp, Larry
- et al.
This paper attempts to provide a balanced view of the neoclassical economists' perspective on trade liberalization, with an emphasis on the agricultural sector. I review the basic arguments in favor of competitive markets in general and free trade in particular. These arguments are based on restrictive assumptions which often fail to hold. Under more realistic assumptions, the arguments in favor of free trade are invalid. Economists remain skeptical of the benefits of trade restrictions, but this is a nuanced judgment, rather than a theoretical certainty. I describe a number of situations where market failures imply that trade restrictions can improve efficiency.