A proposal for the reduction of domestic price variability during the phase-in period of trade liberalization
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Countries replacing existing trade barriers with a fixed tariff may find that domestic price
variability rises to politically unacceptable levels. This paper shows how the tariff-reduction
formula can be modified to delay the transmission of world price variability. The importance
of this modification is demonstrated by a simple two-country, one-commodity simulation
model.
The simulation results show that tariffication of existing EC variable leviesjexport
subsidies would dramatically increase price variability within the European Community and
that the transmission of this variability can be delayed by slightly altering the adjustment
formula.