A Dynamic Optimal Trade Facilitation Policy

Abstract

ABSTRACT The existing literature does not consider the efficiency losses on the adjustment path after a trade facilitation policy is adopted. After a trade facilitation measure, the cost of the foreign producer gets a downward jump, which affects imports, and the market gets out of equilibrium. The market supply and demand get adjusted over time until the post-policy equilibrium arrives. The adjustment of price is based on the lack of coordination among agents at the existing prices. An optimal trade facilitation policy subject to a cost constraint has been derived, which minimizes the efficiency losses on the adjustment path.