The World Trade Organization's Doha Round negotiations has brought up the topic of export taxes/bans on agricultural products and the effects on their trader partners. Suppose that Country Home imports crude oil from Country Foreign and exports rice to Foreign.
Discuss the different implications from the following trade models with respect to an export tax on rice imposed by Home.
- Ricardian (Home has comparative advantage in rice production)
- Home is relative abundant in land and Foreign is abundant in capital)
- Specific Factor model (assume land is specific to rice and capital is specific to oil, and labor is mobile between the two)
For each of the three models above, illustrate the effect of an export tax and discuss who wins and who loses in both Home and Foreign from the rice export tax imposed by Home and why. Please state the relevant underlying assumption for analysis.