IMPACTS OF IMPORT TARIFF REMOVAL AND CHANGES IN INTERNATIONAL PRICES ON THE APPLICABILITY OF THE TRADITIONAL HOS TRADE THEORY

Abstract

This paper examines the effects of agricultural and nonagricultural trade policy changes in the Brazilian economy using a computable general equilibrium model (CGE). An extended Salter-Swan model is employed to verify if the Stolper-Samuelson theorem (SST) holds after having a trade barrier removed and the consequences in terms of prices, production and resources allocation. Results show that the Stolper-Samuelson hypothesis is reversed when imports and domestic goods are poor substitutes. Reduction in import tariff increases national income, which implies that inappropriate trade policy adjustments can stand in the way of promoting rapid and equitable economic growth. Further, our results show that changes in relative factor prices in Brazil depend not only on changes in commodity prices, as in the SST, but also on changes in the balance of trade and factor endowments. This study mainly proposed to verify a specific result from a theoretical trade model, which makes important to stress the carefulness about the empirical results obtained to the Brazilian trade policies.