LeChatelier Principle and the Effects of Trade Policy under Induced Innovation

DOI: 10.4236/tel.2012.23044   PDF   HTML     4,789 Downloads   7,263 Views  


This paper explores the effects of trade policy under induced innovation in general equilibrium. The analysis considers the effects of discrete changes in tariffs and import quotas, allowing for heterogeneous technologies among firms. The interactions between induced innovation and the effects of trade policy give a set of “LeChatelier effects” comparing short run versus long run market equilibrium. We investigate how induced innovation can reduce the adverse effects of tariffs on trade, and influence the effects of quotas on corresponding quota rents. The analysis presents new LeChatelier results that apply globally, i.e. under any discrete change in trade policy.

Share and Cite:

J. Chavas, "LeChatelier Principle and the Effects of Trade Policy under Induced Innovation," Theoretical Economics Letters, Vol. 2 No. 3, 2012, pp. 239-251. doi: 10.4236/tel.2012.23044.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] G. M. Grossman and E. Helpman, “Technology and Trade,” In: G. Grossman and K. Rogoff, Eds., Handbook of International Economics, Chapter 25, Vol. 3, Elsevier Science, 1995, pp. 1279-1337.
[2] J. R. Hicks, “The Theory of Wages,” Macmillan, London, 1932.
[3] C. Kennedy, “A Generalisation of the Theory of Induced Bias in Technical Progress,” Economic Journal, Vol. 83, No. 329, 1973, pp. 48-57. Hdoi:10.2307/2231099
[4] H. P. Binswanger, “A Microeconomic Approach to Induced Innovation,” Economic Journal, Vol. 84, No. 336, 1974, pp. 940-958. Hdoi:10.2307/2230575
[5] D. Acemoglu, “Directed Technical Change,” Review of Economic Studies, Vol. 69, No. 4, 2002, pp. 781-809. Hdoi:10.1111/1467-937X.00226
[6] P. Samuelson, “Foundations of Economic Analysis,” Harvard University Press, Cambridge, 1947.
[7] P. Samuelson, “An Extension of the LeChatelier Principle,” Econometrica, Vol. 28, No. 2, 1960, pp. 368-379. Hdoi:10.2307/1907727
[8] J. P. Neary, “Trade Liberalisation and Shadow Prices in the Presence of Tariffs and Quotas,” International Economic Review, Vol. 36, No. 3, 1995, pp. 531-554. Hdoi:10.2307/2527359
[9] U. Kreickemeier, “The LeChatelier Principle in the Theory of International Trade,” Journal of Economics, Vol. 89, No. 3, 2006, pp. 245-266. Hdoi:10.1007/s00712-006-0202-x
[10] P. Milgrom and J. Roberts, “The LeChatelier Principle,” American Economic Review, Vol. 86, No. 1, 1996, pp. 163-169.
[11] K. Roberts, “Rationality and the LeChatelier Principle,” Journal of Economic Theory, Vol. 87, No. 2, 1999, pp. 414-428. Hdoi:10.1006/jeth.1999.2544
[12] A. K. Dixit and V. Norman, “Theory of International Trade: A Dual General Equilibrium Approach,” Cambridge University Press, London, 1980. Hdoi:10.1017/CBO9780511628627
[13] D. G. Luenberger, “Dual Pareto Efficiency,” Journal of Economic Theory, Vol. 62, No. 1, 1994, pp. 70-85. Hdoi:10.1006/jeth.1994.1004
[14] N. Vousden, “The Economics of Trade Protection,” Cambridge University Press, New York, 1990. Hdoi:10.1017/CBO9780511571978
[15] A. H. Turunen-Red and A. D. Woodland, “Strict Pareto-Improving Multilateral Reforms of Tariffs,” Econometrica, Vol. 59, No. 4, 1991, pp. 1127-1172. Hdoi:10.2307/2938177
[16] A. H. Turunen-Red and A. D. Woodland, “Multilateral Policy Reforms and Quantity Restrictions on Trade,” Journal of International Economics, Vol. 52, No. 1, 2000, pp. 173-148. Hdoi:10.1016/S0022-1996(99)00025-2
[17] M. J. Melitz, “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica, Vol. 71, No. 6, 2003, pp. 1695-1725. Hdoi:10.1111/1468-0262.00467
[18] J. E. Anderson, G. J. Bannister and J. P. Neary, “Domestic Distortions and International Trade,” International Economic Review, Vol. 36, No. 1, 1995, pp. 139-157. Hdoi:10.2307/2527430
[19] R. C. Feenstra, “Estimating the Effects of Trade Policy,” In: G. Grossman and K. Rogoff, Eds., Handbook of International Economics, Elsevier Science, Vol. 3, 1995, pp. 1553-1595.
[20] J. E. Anderson and J. P. Neary, “A New Approach to Evaluating Trade Policy,” Review of Economic Studies, Vol. 63, No. 1, 1996, pp. 107-125. Hdoi:10.2307/2298117
[21] J. E. Anderson and J. P. Neary, “The Mercantilist Index of Trade Policy,” International Economic Review, Vol. 44, No. 2, 2003, pp. 627-649. Hdoi:10.1111/1468-2354.t01-1-00083
[22] N. H. Chau, R. Fare and S. Grosskopf, “Trade Restrictiveness and Efficiency,” International Economic Review, Vol. 44, No. 3, 2003, pp. 1079-1095. Hdoi:10.1111/1468-2354.t01-1-00101
[23] M. Allais, “Traité d’Economie Pure,” Vol. 3, Imprimerie Nationale, Paris, 1943.
[24] M. Allais, “La Théorie Générale des Surplus,” Economies et Sociétés, Institut des Sciences Mathématiques et Economiques Appliquées, 1981.
[25] D. G. Luenberger, “Microeconomic Theory,” McGraw-Hill, Inc., New York, 1995.
[26] D. G. Luenberger, “Benefit Functions and Duality,” Journal of Mathematical Economics, Vol. 21, No. 5, 1992, pp. 461-481. Hdoi:10.1016/0304-4068(92)90035-6
[27] R. T. Rockafellar, “Convex Analysis,” Princeton University Press, Princeton, 1996.
[28] A. Takayama, “Mathematical Economics,” 2nd Edition, Cambridge University Press, Cambridge, 1985.

comments powered by Disqus

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.