The present chapter begins by drawing the distinction between non-traded and potentially traded goods, the treatment of the latter category depending essentially on how government policies are expected to change in future. The valuation of non-traded goods is then discussed in more detail, particular attention being paid to problems raised where such goods are project outputs. For non-traded goods as inputs, it is shown how valuation will differ according to whether their use has an impact on production or consumption if neoclassical marginal equality conditions do not hold. The argument is accompanied by a detailed example showing how an average conversion factor may be worked out. The discussion next moves to considering the effects of relaxing the assumption of ‘unchanged’ policies; notably the removal of protective barriers and accompanying devaluation. The general equilibrium of ‘free trade’ exchange rate concept (FTER) is introduced and illustrated, as is the notion of valuing labour’s consumption according to whether protectionist policies are maintained or abandoned. Finally we consider the notion of the ‘optimal’ tariff or tax and examine the argument about ‘freeing’ trade in the light of some general political and institutional considerations.
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