Price and Quantity Rigidities in Adjustment to Trade Policy Changes: Alternative Formulations and Initial Calculations

In this paper we examine adjustment to trade policy changes in the context of a recently-formulated seven-region numerical general-equilibrium model of world trade, due to Whalley (1982). We evaluate possible short-run adjustment costs in response to trade policy changes using an approach similar to that adopted by Cline et al. (1978) in their analysis of the ‘Tokyo Round’ of trade negotiations. We examine different formulations in which the required long-run price and/or quantity adjustments are prevented from occurring because of adjustment rigidities. We also relate our calculations to welfare and adjustment-cost estimates for the USA from a study of multilateral tariff reductions by Baldwin et. al. (1980).