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Luojia Economics and Management Innovation Forum No.127 - Economics Forum
Date:2025-03-25

Topic: A Political Economy of Mercantilism

Speaker: Prof. Paolo Epifani, University of Nottingham, UK (UK and China Campus)

Time: March 27, 2025, 10:30

Venue: EMS 366


Abstract:

I study a general-equilibrium variation of the two-sector model of international trade with monopolistic competition in Venables (1987). I find that non-tariff barriers (and import protection more generally) harm both consumers and producers under balanced trade, a robust result that holds in the presence of country asymmetries, noninfinitesimal changes in trade policy, income effects on the demand for manufactures, etc. My model raises a puzzle, as it cannot help to rationalize protectionism. To address it, I allow for endogenous trade balances in the same setting. I find that Lerner symmetry breaks down, and that trade policy now benefits domestic producers when it leads to a trade surplus. Moreover, a quantitative exploration suggests that, independent of country characteristics and initial conditions, and of whether manufactures and nonmanufactures are substitutes or complements in consumption, the delocation effect of import protection is always opposite in sign and up to an order of magnitude bigger with endogenous trade balances than under balanced trade. My study therefore suggests that protectionism is more tempting when politically motivated governments can make a mercantilist use of it. A conclusion in line with the evidence showing that more protectionist countries tend to run larger trade surpluses on average.


Guest Bio:

Paolo Epifani is a Professor of International Economics at the University of Nottingham (UK & China) since 2014, and he is moving to Duke Kunshan University in August 2025. Previously, he served as the Head of the Nottingham Ningbo School of Economics (2014-17), as an Associate Professor of Economics at the Bocconi University Milan (2006-14) and as an Assistant Professor of Economics at the University of Parma (2001-06). His research focuses on the theory and empirics of international trade. A distinguishing feature of his approach is the use general equilibrium trade models to address important macroeconomic issues, such as trade imbalances, the political economy of trade and economic policies, migration, income inequality and economic geography, and the welfare effects of globalization more generally. Some of his research is published in leading economics journals, such as the Review of Economic Studies, the Review of Economics and Statistics, The Economic Journal, the Journal of International Economics, etc.