Alternative Approaches to Measuring the Cost of Protection
(Prepared for presentation at the invited AEA session "Feuds over Free Trade," Jan 6, 2002.) I make two broad points in the paper. First, the view that traditional models based on increasing opportunity costs imply low costs of protection has resulted from estimates derived for cases with low levels of protection. If the level of protection itself is high, traditional models can readily lead to costs ranging from 5 to 10 percent of the GDP. The cost of autarky can be even higher. Second, low protection can also lead to high costs provided we allow for economies of scale in production, fixed costs of entering a market, directly unproductive profit-seeking (DUP) activities or X-efficiency. I also provide a summary of the literature on the relationship between openness on the one hand and growth and productivity on the other.