DOMESTIC DISTORTIONS AND INTERNATIONAL-TRADE

In this paper, we develop techniques for measuring the trade policy equivalent of domestic distortions, using a distance function approach. Our measure, the Trade Restrictiveness Index, is shown to equal the uniform tariff which is welfare equivalent to a given pattern of domestic taxes and subsidies. We extend the index to incorporate taxes in markets for nontraded goods and factors of production and illustrate its operationality with an application to liberalisation in Mexican agriculture. We conclude that our index has considerable potential in empirical work and as an aid to trade negotiators.