Import protection and exports

Abstract

The note by Marjit and Sarkar (1995) in this journal attempts to show that reduction in tariffs on imports of a commodity could lead to decline in its exports. The arguments put forward by the authors is not only onesided but also leave serious gaps in the explanation of the possible results within their model. This note shows by taking the basic model used by Marjit and Sarkar that reduction in import tariffs on a commodity does not necessarily lead to a decline in its exports. If one takes import tariff reduction to be both on the final good and also on intermediate goods used in its production, it should lead to increase in exports by shifting the cost curves downward. Analysis of exports in the context of the present policy reforms towards making policy prescriptions warrants a careful examination of the effect of liberalisation polices in general on the evolution of the domestic market structure and its implications on costs of production rather than going by piecemeal approaches.